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SOUTHERN  SKANCH, 

UNIVERSITY  OF  CALIFORNIA, 
LIBRARY, 


61ST  COiNGRESS  :  :  2d  SESSION 

1909-1910 


SENATE  DOCUMENTS 


Vol.  17 


WASHINGTON  :  :  GOVERNMENT  PRINTING  OFFICE  :  :  1910 


61ST  Congress  1  cttivt  a  ^ir  /  Document 

2d  Session      )  SE^AiE  |     No.  491 


NATIONAL  MONETARY  COMMISSION 


Clearing  Houses 


BY 

JAMES  GRAHAM  CANNON 

Vice-President  Fourth  National  Bank,  New  York  City 


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Washington  :  Government  Printing  Office  :  1910 


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NATIONAL  MONETARY  COMMISSION. 


Nelson  W.  Aldrich,  Rhode  Island,  Cliairtnan. 

Edward  B.  Vreeland,  New  York,  Vice-Chairman. 
Julius  C.  Burrows.  Michigan.  Jesse  Overstreet,  Indiana. 

Eugene  Hale,  Maine.  John  W.  Weeks,  Massachusetts. 

Philander  C.  Knox,  Pennsylvania.  Robert  \V.  Bonynge,  Colorado. 

Theodore  E.  Burton,  Ohio.  Sylvester  C.  Smith,  California. 

John  W.  Daniel,  Virginia.  Lemuel  P.  Padgett,  Tennessee. 

Henry  M.  Teller,  Colorado.  George  F.  Burgess,  Texas. 

Hernando  D.  Money,  Mississippi.  Arsene  P.  Pujo,  Louisiana. 

Joseph  W.  Bailey,  Texas.  Arthur  B.  Shelton,  Secretary. 

A.  Piatt  Andrew,  Special  Assistant  to  Commission. 


CONTENTS, 


Page. 


Chapter  I.— Classes  of  Clearing  Houses. .  _  _ i 

A    clearing    house    defined— Clearing    houses 
^^  classified  with  respect  to  functions— Clear- 

'^""^  ing   houses   classified    with   respect   to   the 

funds  used  in  settlements. 

II.— Clearing-house  Terms 3 

How  usages  differ — The  meaning  of  "to 
clear"  —  Clearings  —  Exchange  and  ex- 
changes—Bills and  bills  of  exchange- 
Draft  and  check — Accounts  balanced  and 
balances  in  accounts — Collections— Items- 
Clearing  matter— Settlements— Out-of-town 
checks  and  country  checks. 

III. — Special  Functions  of  a  Clearing  House 1 1 

Primary  object — Extension  of  field — List  of 
special  functions— Action  of  clearing-house 
banks  at  outbreak  of  civil  war — Mutual 
assistance  of  members — Fixing  rates  of  in- 
terest on  deposits — The  practice  in  Sioux 
City— Establishing  rates  of  exchange- 
Some  Buffalo  history — Rochester — Balti- 
more —  Houston  —  Toledo  —  Topeka  —  St. 
Louis— West  Superior— St.  Joseph— Clear- 
ing-house loan  certificates. 
IV. — Possible  Developments  of  the  Clearing- 
house System 24 

New  functions  to  be  exercised — Country 
checks — Transfer  of  currency  from  point  to 
point— Possible  use  of  gold  certificates- 
Special  examiners— Settlement  of  bal- 
ances— Advantages  of  the  cash  basis — 
Clearing-house  depositories — The  use  of  de- 
pository certificates. 

V. — The  Administration  of  Clearing  Houses 30 

List  of  oflficials— Duties  of  officers— Commit- 
tees— Annual  meetings. 


National    Monetary     Commission 


Chapter  VI. — The       Settlement       of       Clearing-House 

Balances 36 

Results  accomplished  by  settlements — Ratio 
of  balances  to  clearings — Settlements  with 
money — Clearing-house  settlements  in  Can- 
ada— Money  in  labeled  packages — Objec- 
tions to  silver — Methods  of  settling  balances 
without  money — Advantages  of  the  man- 
ager's check  over  settlements  in  cash. 
VII. — ClEaring-House  Exchanges 47 

Location  of  clearing  houses — Arrangement  of 
furniture — Hour  of  making  exchanges — 
Clearing  matter — Character  of  indorse- 
ments— Messengers  and  settling  clerks — 
Conducting  the  exchanges — Determining 
balances — Two  clearings  a  day. 
VIII. — Clearing  Country  Checks 58 

The  growing  use  of  checks — The  difficulty  of 
country  checks — Remedies  proposed — State 
and  National  clearing  houses — The  Kansas 
City,  Mo.,  plan — The  Atlanta,  Ga.,  plan. 
IX. — Typical  Journey  of  a  Country  Check  Remit- 
ted for  a  City  Account 64 

The  small  amount  of  work  required  of  payer 
and  payee — The  large  amount  of  work  re- 
quired of  the  bank  in  which  the  check  is 
deposited  and  its  correspondent — What  the 
receiving  bank  does — What  its  regular  cor- 
respondent in  the  city  nearest  the  country 
bank  is  required  to  do — What  the  country 
bank  has  to  do — An  illustrative  example. 
X. — ClEaring-House  Loan  Certificates 75 

What  clearing-house  loan  certificates  are — 
Origin — Interest  rates — Uses — First  issue  in 
1860 — The  issues  of  1861,  1863,  and  1864 — 
Action  of  various  clearing  houses  in  1873 — 
New  Orleans  in  1879 — New  York  in  1884 — 
Action  of  the  New  York,  Boston,  and  Phil- 
adelphia clearing-house  associations  in 
1890 — General  resort  to  loan  certificates  in 
1893 — Emergency  circulation  in  the  South, 
Boston,  and  Philadelphia  in  1895 — New 
Orleans  in  i8q6 — Calculations  of  interest. 


IV 


Contents, 

Page. 

Chapter  XL— Clearing-House    Loan   Certificates  of  the 

Panic  of  1907 ^^7 

Causes  of  panic— Action  of  the  New  York 
clearing  house— Chicago  clearing  house- 
Boston  clearing  house — Philadelphia  clear- 
ing house — Clearing-house  checks  issued  at 
Canton,  Ohio — At  Cincinnati  and  Cleve- 
land—Certificates at  Fargo,  N.  Dak.,  and 
Los  Angeles— Plan  of  group  2,  Ohio  Bankers' 
Association — Total  of  certificates  issued. 

XII.— Clearing-House  Bank  Examiners i37 

-  General  remarks— Examiner  appointed  at 
Chicago  in  1906 — Minneapolis  and  St. 
Paul— St.  Louis— Los  Angeles— Kansas  City 
and  St.  Joseph— Philadelphia— Details  of 
proposed  group  plan  of  the  California  Bank- 
ers' Association. 

XiiL The  New  York  Clearing  House 148 

Origin  and  early  history— Formal  organization 
in  1853 — First  location — New  York  clearing- 
house building  company— Cedar  street  prop- 
erty— Constitutional  provisions — Commit- 
tees— Statistics  of  membership— Clearing  for 
nonmembers— Statements  of  condition- 
Capitalization  of  New  York  banks— Records 
of  clearing  house. 
XIV— D\iLY  Routine  of  the  New  York  Clearing 

House ^90 

The  clearing  room— Clerks  and  messengers— 
The  manager's  part— How  the  exchanges  are 
jnade— The  cash  balance  paid  in— The  dis- 
bursements—Clearing-house gold  deposi- 
tory— Restrictive  indorsements — Pro  rating 
of  expenses— Record  of  fines— Table  of 
annual   clearings— Table   of   average   daily 

XV.— The    Clearing    House    Association    of   the 

Banks  of  Philadelphia 223 

Early  history— Runners'  exchange— The 
morning  exchange— Gold  depository— Clear- 
ing-house due  bills— Settlements  without  the 
use  of  money — Comparison  of  bank  state- 
ments—Collateral security— Assessments  of 
expenses— Admission  of  new  members- 
Plan  of  administration— List  of  presidents- 
Failures  and  resulting  litigation. 


National     Monetary     Commission 


Page. 
Chapter  XVI. — The  Boston  Clearing  House 240 

Formation  and  early  history — Period   of  the 
civil  war— Settlement  of  balances — Borrow- 
ing and  loaning  balances — Clearing  for  out- 
side banks. 
XVII. — Foreign  Department  of  the  Boston  Clearing 

House 259 

Organization  and  history — Regulations — Two 
clearing  hours — Blanks  and  forms — Fines — 
Bookkeeping. 
XVIII. — The  Chicago  Clearing  House 276 

Date  and  history  of  formation — Methods  of 
exchange — Preliminary  exchanges  among 
members — Kinds  of  money  employed  in 
settling  balances — Trading  balances — Non 
member  banks  that  clear — Statements  of 
condition — Expenses  and  fines — Admissions 
and  expulsions — Volume  of  clearings — Ad- 
ministration. 
XIX. — The  St.  LouiS  Clearing  House 298 

Early  history — Scope  of  membership — Plan  of 
administration — Management  of  clearings — 
Records  kept  by  the  manager. 


VI 


Contents, 


ILLUSTRATIONS. 


Page. 
Form  of  receipt  used  by  Buffalo  clearing  house  given  by  creditor 

banks  on  receipt  of  balances 40 

Form  of  receipt  given  by  Buffalo  clearing  house  to  debtor  banks  on 

payment  of  balances 42 

Facsimile  of  the  check  the  journey  of  which  is  shown  on  the  map  on 

page  71 69 

Map  showing  the  check's  itinerary 71 

Facsimile  of  the  back  of  the  check,  showing  the  numerous  indorse- 
ments  it  bore  on  finally   reaching   the   bank   on  which   it   was 

drawn 73 

Form  of  clearing-house  loan  certificate  used  by  New  York  clearing 
house  in  1873;  later  issues  differ  from  this  only  in  the  omission  of 

the  restrictive  date 84 

Form  of  clearing-house  loan  certificate  used  in  Philadelphia 87 

Form  of  clearing-house  loan  certificate  used  in  Boston 97 

Form  of  clearing-house  loan  certificate  used  in  Baltimore 99 

Form  of  clearing-house  loan  certificate  used  in  New  Orleans 102 

Form  of  clearing-house  loan  certificate  used  in  Cincinnati 104 

Form  of  clearing-house  loan  certificate  used  in  Detroit 106 

Form  of  clearing-house  loan  certificate  used  in  Atlanta,  Ga 108 

Form  of  clearing-house  loan  certificate  used  in  Birmingham,  Ala 1 1 1 

Form  of  clearing-house  check  used  in  Chicago 120 

Form  of  clearing-house  check  used  at  Canton 126 

Form  of  clearing-house  certificate  used  at  Fargo,  N.  Dak 128 

Form  of  check  issued  by  Group  2,  Ohio  Bankers'  Association 130 

Resolution  authorizing  exchanges  through  a  member  bank 172 

Application  to  clear  for  another  bank 173 

Consent  to  clear  for  another  bank _- 174 

Form  of  statement  of  weekly  averages  of  nonmember  banks 175 

Form  of  statement  of  weekly  averages  for  trust  companies 176 

Form  of  statement  required  by  the  New  York  Clearing  House 

Association  of  Trust  Companies 180 

Form  used  at  clearing  house  in   tabulating  national  bank  state- 
ments    181 

Form  used  at  clearing  house  in  tabulating  state  bank  statements —  182 
Skeleton  of  weekly  statement  of  the  associated  banks  of  the  city  of 

New  York 183 


National     Monetary     Commission 

Page. 

Form  of  statement  required  of  associated  banks 184 

Form  of  summary  of  weekly  statement  of  associated  banks Face  184 

Skeleton  of  weekly  statement  of  nonmember  banks Face  1 84 

Facsimile  of  "small  ticket"  deposited  by  messenger  with  settling 

clerk 193 

Form  of  "first"  or  credit  ticket 194 

Form  of  settling  clerk's  receipts 196 

Form  of  settling  clerk's  statement 197 

Form  of  "second"  ticket 199 

Clearing-house  proof  sheet 201 

Form  of  settling  clerk's  report  to  his  bank  of  daily  balances 203 

Manager' s  receipt 205 

Form  of  gold  certificate  (face) ' 206 

Form  of  gold  certificate  (back) 207 

Clearings  for  fifty-five  years  at  New  York 217 

Balances  paid  in  cash  for  fifty-five  years  at  New  York 221 

Form  of  clearing-house  due  bill 226 

Form  of  weekly  statement  required  of  Philadelphia  banks 228 

Form  of  daily  statement  employed  by  the  banks  of  Philadelphia 230 

Form    of    statement    of    the    average    condition    of    Philadelphia 

banks Face  230 

Form  of  ticket  used  by  Boston  banks  in  connection  with  payment  of 

debit  balances 246 

Form  of  manager's  receipt  for  debit  balances,  Boston 248 

Form  in  use  in  Boston  for  transfer  of  balances 250 

Statement  of  weekly  averages  of  the  associated  banks  of  Bos- 
ton  Face  252 

Form  of  average  weekly  return  in  use  by  the  associated  banks  of 

Boston 253 

Form  of  receipt  for  pro  rata  charge  on  account  of  uncollected  checks, 

Boston 264 

Foreign  slip  and  check  ticket,  Boston  clearing  house 266 

Form  of  receipt,  foreign  department,  Boston  clearing  house 268 

Exchange  ticket,  foreign  department,  Boston  clearing  house 270 

Form  of  letter  of  transmission  to  correspondents,  Boston 272 

Form  of  settling  sheet,  foreign  department,  Boston  clearing  house —  275 

Forms  of  reports  used  in  trading  balances,  Chicago 283 

Form  of  order  used  in  transferring  balances  that  have  been  loaned, 

Chicago ^ 287 

Form  of  order  on  clearing-house  manager  for  balance  due  Chicago.  _  293 

Facsimile  of  debit  list  used  in  St.  Louis  clearing  house 303 

Form  used  for  listing  balances  in  St.  Louis  clearing  house 305 

Form  of  manager's  report  of  clearings,  balances,  etc.,  St.  Louis 307 


VIII 


CLEARING  HOUSES. 


Chapter  I. 
CLASSES  OF  CLEARING  HOUSES. 

A  CI.EARING  HOUSE  DEFINED CLEARING  HOUSES  CLASSI- 
FIED WITH  RESPECT  TO  FUNCTIONS — CLEARING  HOUSES 
CLASSIFIED  WITH  RESPECT  TO  THE  FUNDS  USED  IN  SET- 
TLEMENTS. 

What  is  a  clearing  house?  The  supreme  court  of  the 
State  of  Pennsylvania  has  defined  it  thus : 

It  is  an  ingenious  device  to  simplify  and  facilitate  the  work  of  the  banks 
in  reaching  an  adjustment  and  payment  of  the  daily  balances  due  to  and 
from  each  other  at  one  time  and  in  one  place  on  each  day.  In  practical 
operation  it  is  a  place  where  all  the  representatives  of  the  banks  in  a  given 
city  meet,  and,  under  the  supervision  of  a  competent  committee  or  officer 
selected  by  the  associated  banks,  settle  their  accounts  with  each  other  and 
make  or  receive  payment  of  balances  and  so  "clear"  the  transactions  of 
the  day  for  which  the  settlement  is  made. 

But  we  must  go  farther  than  this,  for  though  originally 
designed  as  a  labor-saving  device,  the  clearing  house  has 
expanded  far  beyond  those  limits,  until  it  has  become  a 
medium  for  united  action  among  the  banks  in  ways  that 
did  not  exist  even  in  the  imagination  of  those  who  were 
instrumental  in  its  inception.  A  clearing  house,  therefore, 
may  be  defined  as  a  device  to  simplify  and  facilitate  the 
daily  exchanges  of  items  and  settlements  of  balances 
among  the  banks  and  a  medium  for  united  action  upon 
all  questions  affecting  their  mutual  welfare. 


N  at  i  0  71  a  I    Monetary     Com  m  i  s  s  i  o  n 

The  clearing  houses  in  the  United  States  may  be  di- 
vided into  two  classes,  the  sole  function  of  the  first  of  which 
consists  in  clearing  notes,  drafts,  checks,  bills  of  exchange, 
and  whatever  else  may  be  agreed  upon,  and  the  second 
of  which,  in  addition  to  exercising  the  functions  of  the 
class  just  mentioned,  prescribes  rules  and  regulations  for 
the  control  of  its  members  in  various  matters,  such  as  the 
fixing  of  uniform  rates  of  exchange,  interest  charges,  col- 
lections, etc. 

Clearing  houses  may  also  be  divided  into  two  classes 
with  reference  to  the  funds  used  in  the  settlement  of 
balances:  First,  those  clearing  houses  which  make  their 
settlements  entirely  on  a  cash  basis,  or,  as  stated  in  the 
decision  of  the  supreme  court  above  referred  to,  "by 
such  form  of  acknowledgment  or  certificate  as  the  associ- 
ated banks  may  agree  to  use  in  their  dealings  with  each 
other  as  the  equivalent  or  representative  of  cash;"  and 
second,  those  clearing  houses  which  make  their  settle- 
ments by  checks  or  drafts  on  large  financial  centers. 


Chapter  II. 
CLEARING-HOUSE  TERMS. 

HOW    USAGES    DIFFER — THE    MEANING    OF    "TO    CLEAR " — 

CIvEARINGS EXCHANGE     AND     EXCHANGES BII^IvS     AND 

BIIvIvS  OF  EXCHANGE — DRAFT  AND  CHECK — ACCOUNTS 
BALANCED  AND  BALANCES  IN  ACCOUNTS — COLLECTIONS — 
ITEMS  —  CLEARING  MATTER  —  SETTLEMENTS  —  OUT-OF- 
TOWN    CHECKS    AND    COUNTRY    CHECKS. 

Every  profession  and  every  line  of  business,  as  well  as 
every  trade,  develops  its  own  peculiar  terms  and  phrases. 
Those  who  become  familiar  with  the  routine  of  the  business 
or  the  profession  use  these  terms  among  themselves  with 
a  degree  of  precision  and  certainty  of  meaning  which 
sometimes  is  difficult  for  one  outside  of  the  group  to 
comprehend.  The  usage  in  this  regard  by  banks  and 
clearing  houses  is  no  exception  to  the  general  rule. 

Terms  which  are  current  in  one  part  of  the  country 
or  in  one  financial  center  do  not  always  obtain  in  others, 
and  to  a  certain  extent  different  terms  are  sometimes 
employed  in  different  parts  of  the  country  for  indicating 
approximately  the  same  things.  For  these  reasons,  and 
others  which  the  reader  will  readily  apprehend,  a  brief 
consideration  of  a  few  of  the  prominent  terms  employed 
in  clearing-house  affairs  is  appropriate  by  way  of  intro- 
duction to  the  more  important  chapters  which  follow. 


National    Monetary     Commission 

Nothing  like  a  complete  list  is  attempted,  and  instead 
of  presenting  the  definitions  in  conventional  dictionary- 
fashion,  the  meaning  of  certain  terms  and  the  special  uses 
to  which  they  are  applied  are  laid  before  the  reader  in 
a  far  less  formal  manner. 

The  term  "clearing  house"  is  defined  at  some  length 
in  another  part  of  this  volume,  from  the  standpoints  of 
use  and  function.  The  word  is  also  used  in  the  sense  of 
location  or  place.  ytA.  clearing  house  may  be  described 
as  an  office,  established  by  the  banks  of  a  city,  where 
their  representatives  meet  daily  to  exchange  drafts  and 
checks  and  adjust  balances. 

The  term  "to  clear"  is  popularly  defined  "to  pass 
through  the  clearing  house."  Another  definition  is,  "to 
settle  accounts  by  exchange  of  bills  and  checks,  as  is 
done  in  the  clearing  house."  To  clear  a  check  means  to 
pass  it  from  the  bank  that  holds  it  as  a  deposit  or  for 
collection  to  the  bank  on  which  it  is  drawn,  and  to  receive 
payment  therefor;  but,  with  the  complexities  of  modern 
business,  a  single  check  is  seldom  cleared.  Instead  a 
multitude  of  checks  and  other  items  are  included  in  each 
clearing.  The  term  ' '  to  clear ' '  therefore  takes  on  a 
broader  meaning,  and  the  only  adequate  conception  of 
it  is  afforded  by  a  view  of  the  actual  operations  of  a 
clearing  house,  which  are  set  forth  in  another  part  of  this 
volume. 

The  word  "clearing"  designates  the  settlement  of 
balances  between  banks,  arising  from  the  interchange  of 
checks,  drafts,  etc.,  carried  on  at  the  clearing  house.  The 
term   "clearings"   signifies  the  total  of  differences  bal- 


Clearing-House,     Methods 

anced  at  a  clearing  house.  Occasionally  the  words 
"clearance"  and  "clearances,"  which,  properly  employed, 
designate  space  or  distance,  are  used  in  the  place  of 
"clearing"  and  "clearings."  Their  employment  in  the 
place  of  the  latter  is  not  justified  by  general  usage  nor  by 
the  real  meaning  of  these  forms  of  the  word. 

The  term  "exchange,"  so  common  in  financial  and 
business  transactions,  has  various  shades  of  meaning, 
ranging  from  a  charge  for  the  transfer  of  money  from 
one  point  to  another,  to  the  place  where  business  inter- 
ests of  a  special  class  are  brought  together  and  where 
contracts  concerning  them  are  made.  The  word  liter- 
ally means  the  act  of  giving  one  thing  as  an  equivalent 
for  another,  or  for  interchanging  two  equivalents.  From 
this  it  comes  that  the  word  indicates  that  which  is  given 
or  received  by  an  arrangement  for  mutual  interchange, 
and  hence  the  term  "exchanges,"  frequently  employed  by 
those  who  have  transactions  with  the  clearing  house,  to 
indicate  the  items  that  are  to  be  exchanged,  as,  for 
example,  in  the  phrase:  "The  amount  of  exchanges."  . 

The  term  "bill"  has  several  different  meanings,  rang- 
ing from  a  statement  of  an  account,  or  of  money  due,  to 
a  bank  note  or  government  note.  Occasionally,  in  loose 
usage,  it  means  a  promissory  note.  In  Great  Britain  the 
term  is  frequently  used  to  mean  a  bill  of  exchange.  As 
used  in  connection  with  clearing-house  affairs  in  this 
country,  it  usually  designates  bank  notes  or  government 
notes. 

A  "bill  of  exchange"  is  a  written  order  or  request 
from  one  person  to  another,  for  the  payment  of  money 


National    Monetary     Commission 

to  a  third,  the  amount  to  be  charged  to  the  drawer  of 
the  bill.  This  term,  therefore,  while  having  a  special 
meaning  in  some  cases,  often  includes  drafts  which  are 
drawn  by  merchants  upon  their  customers  in  ordinary 
course  and  put  through  bank  for  collection.  The  term 
in  this  sense,  however,  is  less  commonly  employed  than 
"draft." 

A  "draft"  may  be  described  as  an  order  drawn  by  one 
party  on  another  for  the  payment  of  money  to  a  third. 
It  is  for  the  most  part  limited  to  an  order  payable  at,  or 
collectable  through,  a  bank  or  other  financial  agency.  A 
draft  made  payable  at  some  time  other  than  at  sight, 
and  which  has  been  accepted  by  the  party  upon  whom  it 
is  drawn,  is  known  as  an  "acceptance,"  and  is  treated 
by  banks  and  clearing  houses  the  same  as  a  note. 

A  "check"  is  an  order  in  writing  upon  a  bank  or 
banker  for  the  payment  of  a  designated  amount  of  money 
to  some  designated  person  or  order.  Checks  vary  in 
form.  Those  which  are  current  between  banks  and 
bankers — as,  for  example,  the  checks  that  would  be  used 
by  a  country  bank  in  drawing  against  the  balance  lodged 
with  its  New  York  correspondent — frequently  take  the 
form  that  commonly  obtains  with  drafts.  Hence  the 
term  "bank  draft"  or  "banker's  draft,"  often  employed 
by  those  who  purchase  New  York  or  other  exchange  of 
their  local  banks  to  designate  the  character  of  their 
remittance. 

A  "center"  is  described  as,  in  the  dictionaries,  the 
place  about  which  things  cluster,  or  to  which  they  con- 
verge.    It  is  also  described  as  the  point  of  emanation 


Clearing-House      Methods 

or  radiation.  With  this  definition  before  us,  it  is  easy 
to  perceive  what  is  meant  by  a  "money  center"  or  a 
"financial  center." 

The  term  "balance"  has  two  distinct  meanings,  and 
the  word  is  used  among  bankers  and  business  men  in  a 
way  to  indicate  two  things  entirely  different  from  each 
other.  In  its  simplest  form  a  balance  may  be  declared 
to  be  an  equality  between  the  credit  and  debit  totals  of 
an  account.  But  it  is  also  used  to  refer  to  the  difference 
between  such  totals,  or,  in  other  words,  the  excess  on 
one  side  or  the  other.  Thus  in  the  first  sense  we  declare 
that  an  account  is  balanced  when  it  has  been  closed  by 
securing  an  equality  of  the  two  sides.  In  the  second 
sense,  when  we  speak  of  the  balance  in  an  account,  we 
mean  either  the  debit  or  credit  amount,  as  the  case  may 
be,  that  is  required  to  produce  an  equality  of  the  two 
sides,  or,  in  other  words,  to  close  the  account.  The 
balances  in  a  clearing-house  statement  are  the  respective 
differences  between  the  debit  and  credit  sides  of  the 
several  accounts  included  in  the  statement.  A  bank's 
balance  in  a  clearing-house  settlement  would  mean  either 
the  amotmt  that  it  has  to  pay  or  the  amount  that  it  is 
to  receive,  according  to  the  excess  of  debits  or  credits 
shown  by  the  statement. 

The  dictionaries  define  the  verb  "to  collect"  as  follows: 
"To  gather  money  from  many  people."  A  collection  is 
defined  as  "that  which  has  been  gathered  or  taken  up;" 
but  among  the  banks  and  in  clearing-house  circles  the 
term  "collection"  is  somewhat  expanded  beyond  these 
limitations,  and  is  used  for  designating  that  which  is  to 


National    Monetary     Commission 

be  collected.  For  example,  the  drafts  or  bills  of  exchange 
which  a  bank  holds  at  a  given  date  are  frequently  desig- 
nated as  its  "collections,"  particularly  at  the  time  that 
they  are  being  arranged  in  proper  order  for  transmission 
to  its  correspondents  or  for  delivery  to  the  clearing 
house.  Sometimes  the  term  employed  in  such  cases  is 
"collection  items,"  which,  of  course,  means  the  items 
for  collection. 

An  "item,"  as  the  term  is  generally  understood,  means 
a  separate  article  or  entry  in  an  account  or  schedule,  or 
a  sum  so  entered.  The  term  among  banks  and  in  clearing 
houses  is  used  in  the  latter  sense  almost  literally.  An 
item  is  that  of  which  an  entry  has  been  made,  whether 
it  is  a  draft,  bill  of  exchange,  check,  or  note. 

The  word  is  frequently  employed  in  combination  with 
a  qualifying  term,  as,  for  example,  "collection  items," 
"out-of-town  items,"  "city  items,"  etc. 

A  term  which  is  as  nearly  original  with  and  peculiar 
to  clearing  houses  as  any  that  might  be  cited  is  "clearing 
matter."  "Matter,"  in  this  phrase,  is  a  collective  term, 
and  designates  any  and  all  of  the  items  that  go  into  a 
clearing  house.  Clearing  matter  then  means  that  col- 
lection of  items,  however  assorted,  which  may  be  cleared. 
"Acceptable  clearing  matter"  would  designate  that  which 
is  acceptable,  according  to  the  rules  of  the  clearing  house. 
There  would,  of  course,  be  the  opposite  or  negative  term; 
for  example,  "unacceptable  matter,"  meaning  that  which, 
while  having  somewhat  of  the  character  of  clearing  matter, 
is  not  of  a  kind  that  is  handled  by  the  clearing  house  in 
question,  under  the  rules  governing  its  operation. 


Clearing-House      Methods 

A  settlement,  in  ordinary  commercial  affairs,  is  an 
adjustment  of  accounts.  "To  settle"  means  to  liquidate, 
or  to  pay,  or  to  adjust  differences.  A  "settlement" 
may  mean  either  the  act  of  settling  or  that  which  is 
accomplished  by  settling.  A  bank's  clearing-house  settle- 
ment therefore  means  an  adjustment  or  payment  of  the 
difference  between  the  debit  and  credit  side  of  the  account 
and  further  designates  either  a  receipt  or  a  disbursement, 
as  the  case  may  be.  Each  member  bank  has  a  settlement 
with  its  clearing  house  daily. 

In  the  designation  of  checks,  with  respect  to  the  location 
of  the  banks  upon  which  they  are  drawn,  considerable 
confusion  exists  at  times  in  the  term  employed  for  the 
purpose.  "Personal  check"  and  "local  check"  are  terms 
occasionally  used  to  indicate  out-of-town  checks  or  checks 
on  country  banks.  An  out-of-town  check  is  one  drawn 
upon  any  bank  outside  of  the  city  in  which  a  given  clearing 
house  is  located,  or  outside  of  the  city  in  which  member 
banks  of  the  given  clearing  house  are  situated.  In  other 
words,  it  is  one  that  must  be  sent  away  for  collection. 
The  term  "country  check"  has  the  same  general  meaning, 
but  is  applied  more  particularly  to  checks  drawn  upon 
banks  located  at  a  considerable  distance  from  a  given 
clearing-house  center.  Referring  again  to  the  terms 
"personal  check"  and  "local  check,"  above  referred  to, 
it  must  be  evident  to  everyone  who  gives  the  matter  the 
least  thought  that  a  check  drawn  by  a  depositor  on  a 
bank  in  New  York  would  be  a  local  check,  and  that  it 
also  would  be  a  personal  check,  and  yet  such  a  check, 
issued  in  the  regular  course  of  business,  is  not  objection- 

20040 — 10 2  9 


National    Monetary     C  o  m  m  i  s  s  i  o  7t 

able  from  any  point  of  view.  On  the  other  hand,  a  check 
drawn  by  a  merchant  in  an  interior  town  upon  a  bank  in 
that  town,  irrespective  of  the  responsibihty  of  the  drawer 
or  the  standing  of  the  bank  upon  which  it  is  drawn,  w^ould 
also  be  a  personal  check;  but  the  latter  would  not  rep- 
resent par  funds  in  New  York.  Out-of-town  checks  and 
country  checks,  accordingly,  are  subject  to  special  regu- 
lations with  respect  to  costs  of  collection. 


Chapter  III. 

SPECIAL  FUNCTIONS  OF  A  CLEARING  HOUSE. 

PRIMARY  OBJECT — EXTENSION  OF  FIELD — UST  OF  SPECIAL 
FUNCTIONS — ACTION  OF  CLEARING-HOUSE  BANKS  AT 
OUTBREAK  OF  CIVIL  WAR MUTUAL  ASSISTANCE  OF  MEM- 
BERS— FIXING  RATES  OF  INTEREST  ON  DEPOSITS — THE 
PRACTICE     IN     SIOUX     CITY — ESTABLISHING     RATES     OF 

EXCHANGE SOME      BUFFALO      HISTORY ROCHESTER — 

BALTIMORE — HOUSTON — TOLEDO — TOPEKA — ST.  LOUIS — 
WEST  SUPERIOR — ST.  JOSEPH — CLEARING-HOUSE  LOAN 
CERTIFICATES. 

The  primary  object  of  a  clearing  house  is  the  exchange 
of  checks  and  drafts  between  the  banks  associated  to- 
gether for  that  purpose,  and  the  settlement  of  balances 
resulting  from  such  exchanges;  but  this  is  not  the  only- 
function  exercised.  As  already  shown,  this  single  func- 
tion constitutes  a  clearing  house  of  the  first  class,  while  the 
addition  of  other  functions  puts  the  organization  into 
another  class.  The  tendency  has  been  marked,  especially 
in  recent  years,  to  include  within  the  legitimate  field  of 
clearing  houses  all  questions  affecting  the  mutual  welfare 
of  the  banks  and  the  community  as  a  whole.  The  bankers 
west  of  the  Mississippi  River  have  given  to  the  country  the 
most  striking  examples  of  the  possibilities  of  clearing 
houses  exercising  various  special  functions,  while  the 
great  associations  of  the  East,  and  especially  that  of  New 
York,  have  exemplified  the  utility  and  value  of  clearing- 
house loan  certificates. 


National    M  o  n  e  t  ar  y     C  o  mm  i  s  s  i  o  n 

The  most  important  of  the  special  functions  of  a  clear- 
ing house  are  (a)  the  extending  of  loans  to  the  Govern- 
ment, (6)  mutual  assistance  of  members,  (c)  fixing  uni- 
form rates  of  interest  on  deposits,  {d)  fixing  uniform  rates 
of  exchange  and  of  charges  on  collections,  and  {e)  the 
issue  of  clearing-house  loan  certificates. 

Less  than  a  decade  after  the  inauguration  of  the  clear- 
ing-house system  in  America  the  civil  war  broke  out  and 
threw  the  Government  into  a  condition  of  acute  finan- 
cial embarrassment.  The  ordinary  sources  of  income 
were  insufficient  to  meet  the  demands  of  the  approaching 
crisis.  Thereupon  the  banks,  members  of  the  clearing 
houses  in  New  York  and  Boston,  responded  with  practical 
unanimity  to  the  call  of  the  Government  for  loans,  by 
which  the  latter  was  enabled  to  put  armies  in  the  field  and 
maintain  the  struggle  for  national  unity. 

In  times  of  panic  it  is  not  infrequently  the  case  that  a 
bank  in  good  standing  becomes  temporarily  embarrassed. 
Unfortunate  report  may  cause  a  run  upon  it,  and,  being, 
unable  to  call  in  a  sufficient  amount  of  its  outstanding 
loans  to  meet  the  demands  of  its  frightened  depositors,  it 
must  either  secure  a  loan  or  fail.  In  such  an  emergency 
the  other  members  of  the  clearing  house  are  usually 
willing  to  render  assistance  until  the  strain  is  relaxed. 
To  secure  such  aid,  however,  a  bank  must  be  sound  in  its 
management  and  of  good  repute  in  every  respect.  Other- 
wise the  members  of  the  clearing  house  are  likely  to  de- 
cline assistance,  being  quite  wilHng  to  get  rid  of  a  weak 
and  ill-manacred  member. 


C  I  e  a  r  i  11  ^  -  H  0  u  s  e      Methods 

Another  of  the  special  functions  of  a  clearing  house  is 
the  fixing  of  uniform  rates  of  interest  on  deposits,  and  in  a 
few  instances  on  loans.  In  some  associations  the  legality 
of  such  action  is  still  regarded  as  a  moot  question,  and 
hence  they  are  reluctant  to  enforce  such  a  rule.  Other 
associations,  however,  have  not  hesitated,  to  regulate  the 
members  on  these  points.  As  early  as  1881  rates  of  in- 
terest were  agreed  upon  in  Buffalo,  and  were  observed 
practically  without  fraction  or  violation  for  some  nine 
years  thereafter.  They  were  broken  at  last  only  because 
of  their  nonobservance  by  new  banks,  which  at  the  outset 
refused  to  become  members  of  the  clearing-house  organi- 
zation. 

The  Sioux  City  Clearing  House  Association  has  fixed  a 
maximum  rate  of  interest  of  2  per  cent  per  annum,  to 
be  paid  b}^  the 'members  upon  bank  accounts  or  balances, 
and  on  time  certificates  of  deposit  3  per  cent.  Without 
any  special  clearing-house  regulation  on  the  subject,  it  is 
generally  understood  by  the  banks  that  6  per  cent  is  the 
minimum  rate  that  shall  be  charged  on  first-class  loans, 
and  that  the  rate  shall  range  from  that  to  8  per  cent,  ac- 
cording to  the  character  of  the  risk. 

At  St.  Joseph,  Mo.,  the  clearing-house  rules  provide 
that  interest  (not  naming  the  rate)  may  be  paid  on  bal- 
ances to  banks,  bankers,  trust  companies,  the  St.  Joseph 
Cattle  Loan  Company,  deposits  of  the  Government,  State, 
county,  city,  etc.,  or  to  individuals,  firms,  corporations, 
not  located  or  doing  business  in  St.  Joseph  or  Buchanan 
County,  but  that  no  interest  may  be  paid  to  individuals, 
firms,    or   corporations    located   or  doing   business   in  St. 


13 


National    Monetary     Commission 

Joseph  or  Buchanan  County,  except  by  unanimous  consent. 
Trust  companies  may  pay  interest  on  checking  accounts 
at  the  rate  of  2  per  cent  per  annum,  while  savings  banks, 
trust  companies,  and  savings  departments  of  commercial 
banks,  on  savings  accounts,  may  pay  interest  at  a  rate  not 
to  exceed  3  per  cent.  Interest  is  not  allowed  on  demand 
or  time  certificates  for  a  less  period  than  six  months,  and 
then  at  the  rate  of  3  per  cent  per  annum.  No  interest  is 
allowed  for  any  fractional  part  of  a  six  months'  period. 

The  banks  of  Savannah,  Ga.,  under  clearing-house  regu- 
lation, may  pay  interest  not  to  exceed  3  per  cent  on  in- 
dividual accounts,  and  then  only  when  the  balances  in 
such  accounts  exceed  $25 ,000.  On  bank  balances,  without 
limitation  as  to  amount,  they  may  pay  not  to  exceed  3 
per  cent. 

The  question  of  clearing-house  regulation  of  the  rates 
to  be  charged  on  local  loans  has  been  considered  by  many 
associations  in  different  parts  of  the  country,  but,  gen- 
erally speaking,  has  not  met  with  much  favor.  It  is  quite 
evident  that  on  this  one  point  the  individual  banks  are 
jealous  of  their  prerogative  to  loan  their  money  at  what- 
ever rate  they  choose.  The  nearest  approach  to  clearing- 
house rate  regulation  of  loans  seems  to  be  in  the  arrange- 
ment in  vogue  at  Chattanooga,  Tenn.,  by  which  the  mini- 
mum rate  to  be  charged  by  the  banks  in  making  their 
loans  is  determined  from  time  to  time  by  a  committee 
appointed  by  the  associate  banks  for  that  purpose. 

Still  another  of  the  special  functions  of  a  clearing  house 
is  the  fixing  of  uniform  rates  of  exchange,  and  of  charges 


14 


Clearing-House      Methods 

on  the  collection  of  items.  In  1881,  the  year  in  which  the 
clearing  house  in  Buffalo  was  organized,  a  prominent 
banker  in  that  city  succeeded  in  uniting  the  banks  on 
rates.  The  promoter  of  the  enterprise,  though  well  known 
for  rate  cutting,  was  a  successful  banker  and  had  always 
been  able  to  meet  competition  successfully.  Hence, 
when  he  proposed  a  uniform-rate  system,  the  other  banks 
were  only  too  glad  to  consider  his  propositions.  Meetings 
were  accordingly  held,  schedules  of  charges  were  drawn  up, 
and  rules  were  formulated  for  the  guidance  of  the  banks. 
In  a  short  time  a  schedule  was  adopted  and  put  in  suc- 
cessful operation.  The  rates  were  not  high,  but  were  ar- 
ranged so  as  to  do  justice,  as  far  as  possible,  to  the  banks 
on  the  one  hand  and  the  depositors  on  the  other,  and  so 
satisfactory  was  the  new  regime  that  it  remained  in  har- 
monious operation  for  nearly  nine  years.  It  is  said  that 
the  increase  in  profits  or  collections,  to  the  12  banks 
interested,  over  the  former  method  of  doing  business  free 
of  charge,  paid  the  dividends  of  all  the  banks  each  year, 
and  whatever  profit  was  made  on  loans  and  discounts 
was  used  to  build  up  the  surplus.  But  the  formation  of 
new  banks  finally  played  havoc  with  the  uniform-rate 
system.  While  it  lasted,  it  was  made  obligatory  upon 
every  bank,  but  in  1891  the  newly  organized  banks  began 
to  cut  on  rates.  The  clearing-house  members  endeavored 
to  induce  the  new  banks  to  join  the  association,  but  did 
not  at  first  succeed.  It  was  regarded  as  unjust  to  the 
member  banks  to  hold  them  to  the  existing  agreement 
when  their  competitors   were  free,   and  accordingly,   in 


15 


National    M  o  jt  e  t  ary     Commission 

June,  1891,  the  schedule  of  rates  was  made  no  longer 
obligatory. 

In  1895  the  Rochester  (N.  Y.)  Clearing  House  Asso- 
ciation put  in  operation  a  schedule  of  collection  charges, 
and  the  results  have  been  most  satisfactory.  All  of  the 
banks  were  in  favor  of  it,  but  there  was  at  first  some 
complaint  on  the  part  of  customers.  The  rates  for  remit- 
tances of  city  items  were  fixed  at  a  meeting  of  the  asso- 
ciation early  in  the  year  1895,  as  follows:  Minimum 
charge,  10  cents;  from  $100  to  $1,000,  one-tenth  of  i 
per  cent;  from  $1,000  to  $2,000,  $1;  over  $2,000,  one- 
twentieth  of  I  per  cent;  par  remittances  to  be  made 
weekly.  Provision  was  made  for  a  fine  of  $1,000  as  a 
penalty  for  any  member  failing  to  observe  the  rates,  $250 
of  which  to  be  paid  to  the  party  giving  the  information. 

On  the  ist  day  of  February,  1897,  a  rule  went  into 
force  at  Baltimore  requiring  the  members  to  charge  and 
collect,  without  rebate,  from  all  individuals,  firms,  or 
corporations  residing  in  the  city,  who  might  thereafter 
become  new  depositors  or  customers  of  the  banks  which 
are  members  of  the  association,  such  minimum  rates  of 
exchange  on  checks,  drafts,  notes,  and  acceptances,  pay- 
able out  of  the  city,  as  are  named  in  schedules  to  be 
furnished  from  time  to  time  by  an  exchange  committee 
of  the  clearing  house.  The  penalty  for  violation  of  this 
rule  is  expulsion  from  the  association,  provided  a  majority 
of  the  members  vote  in  favor  thereof. 

At  a  meeting  of  the  Houston  (Tex.)  Clearing  House 
Association  March  9,  1897,  the  following  resolutions  were 
unanimously  adopted: 


16 


Clearing-House      Methods 

Owing  to  the  fact  that  banks  in  certain  cities  of  this  State  are  uniformly 
charging  the  banks  of  Houston  exchange  on  all  collections  not  reading 
"with  exchange,"  bearing  indorsements  of  banks  outside  the  State:  There- 
fore be  it 

Resolved  by  the  Houston  Clearing  House  Association,  That  all  its  members 
will  hereafter,  as  a  matter  of  self-protection,  charge  the  current  rate  of 
exchange  upon  all  collections  received  from  banks  located  in  any  city 
where  the  foregoing  rule  is  in  effect,  and  which  may  bear  the  indorsement 
of  any  bank  or  banker  outside  of  Texas,  or  originating  outside  of  the  State. 

Resolved,  That  this  resolution  take  effect  on  and  after  April  i,  1897. 

In  the  articles  of  association  of  the  Toledo  (Ohio)  Clear- 
ing House  it  is  provided  as  follows: 

It  shall  also  be  in  the  power  of  such  committee  (the  committee  of  manage- 
ment) to  fix  rates  of  charges  on  items  outside  the  city  and  charges  for 
drafts  or  currency  from  time  to  time,  if  deemed  advisable,  and  change, 
revise,  or  suspend  the  same  as  circumstances  require. 

The  constitution  of  the  Topeka  (Kans.)  Clearing  House 
Association  touches  on  the  subject  of  collection  charges, 
as  follows: 

Rates  for  collections,  whether  made  or  not:  Collection  payment  in 
advance  up  to  $50,  10  cents  each  item;  $50  to  $100,  15  cents  each  item; 
$100  and  upward,  25  cents  each  item.  Collections  on  agricultural  imple- 
ments paper,  25  cents  each  item.  All  drafts  drawn  with  bill  of  lading 
attached,  whether  cash  items  or  not,  25  cents  each  item;  and  if  cash  is 
advanced  on  the  same,  not  less  than  10  cents  per  100,  or  $1  per  1,000. 
Rates  of  exchange  on  drafts  and  collections  drawn  with  exchange  shall  be 
made  at  not  less  than  15  cents  up  to  $50,  25  cents  up  to  $100,  and  10  cents 
for  each  additional  hundred.  The  above  charges  shall  not  apply  to  col- 
lections not  drawn  with  exchange  received  from  bank  correspondents 
who  do  not  charge  collecting  bank  on  like  items. 

The  clearing-house  association  at  St.  Louis  has  in 
force  a  most  successful  system  of  collection  charges, 
which  are  obligatory  upon  all  the  banks  members  of  the 
clearing-house  association  and  upon  all  banks  and  trust 
companies  making  their  clearings  through  members  of 
the  clearing  house. 


17 


National    Monetary     Commission 

The  original  schedules  were  adopted  in  March,  1895, 
and  served  their  purpose  well  for  over  twelve  years.  On 
the  ist  day  of  March,  1907,  however,  new  schedules  were 
adopted,  a  synopsis  of  which  follows: 

It  is  obligatory  upon  every  bank  and  trust  company 
connected  with  the  clearing  house  to  charge  for  all  items 
received  from  St.  Louis  city  customers  (including  all 
banks  and  trust  companies  connected  with  the  associa- 
tion) and  passed  direct  to  their  credit  or  cashed  for  any 
resident  of  the  city  on  points  (except  those  designated  as 
discretionary)  in  certain  named  States,  generally  in  the 
East,  not  less  than  75  cents  per  $1,000  on  the  amount  of 
the  item.  If  this  per  cent  when  calculated  does  not 
equal  10  cents,  the  charge  can  not  be  less  than  that  sum, 
except  on  items  of  $10  or  under,  when  the  charge  shall  be 
5  cents.  Items  received  at  one  time  for  one  customer, 
payable  at  the  same  collection  point,  may  be  treated  as 
one  item,  and  charge  made  accordingly. 

On  certain  other  designated  points,  generally  in  the 
Middle  States,  the  rate  of  collection  is  not  less  than  $1 
per  $1,000,  and  on  items  drawn  on  certain  States  in  the 
West  and  extreme  South  the  rate  per  $1,000  for  collection 
is  not  less  than  $2. 

Certain  cities  are  designated  whereon  the  minimum 
charge  shall  be  50  cents  per  $1,000.  Among  these  are 
Buffalo,  N.  Y.,  Cleveland,  Ohio,  Indianapolis,  Ind.,  and 
Pittsburg,  Pa.  Still  other  cities  are  specially  named  as 
points  whereon  the  minimum  charge  shall  be  $1  per  $1 ,000. 
These  cities  include  Denver,  Colo.,  Lincoln,  Nebr.,  and 
Omaha,  Nebr. 


18 


Clearing- House      Methods 

The  rules  further  name  the  following  cities  as  points 
upon  which  it  is  discretionary  with  each  bank  or  trust 
company  as  to  whether  or  not  it  shall  charge  for  collecting 
items  drawn  thereon:  New  York,  Brooklyn,  Jersey  City, 
Boston,  Philadelphia,  Baltimore,  Washington,  D.  C, 
Chicago,  Cincinnati,  Louisville,  and  New  Orleans. 

Each  bank  and  trust  company  member  of  or  connected 
with  the  clearing  house  is  required  to  collect  the  fore- 
going charges  on  all  items  not  later  than  the  third  day  of 
the  calendar  month  next  following  the  receipt  or  han- 
dling of  the  item,  or  issuance  of  the  draft  or  check,  and  no 
such  bank  or  trust  company  is  permitted  to  allow,  either 
directly  or  indirectly,  any  rebate  or  return  of  any  such 
charges,  or  to  make  in  any  form,  whether  of  favor  or 
otherwise,  any  compensation  therefor. 

The  violation  of  any  of  the  rules  by  any  bank  or  trust 
company  clearing  through  a  member  would  deprive  the 
same  of  its  connection  with  the  association  and  work  the 
forfeiture  of  its  rights  and  privileges  in  the  clearing  house. 
For  a  similar  offense  any  member  would  be  expelled  on  a 
three-fourths  vote  in  favor  thereof. 

Up  to  a  comparatively  short  time  ago  no  other  asso- 
ciation in  the  country  had  approached  that  of  St.  Joseph 
in  the  detail  with  which  it  had  worked  out  a  system  of 
regulations  governing  the  conduct  of  its  members  in 
regard  to  making  collections.  In  the  past  few  years, 
however,  considerable  attention  has  been  given  to  the 
subject  by  the  several  associations,  with  the  result  that 
between  50  and  60  per  cent  of  all  the  clearing  houses  in 
the  United  States  are  now  working  under  comprehensive 


19 


National    Monetary     Commission 

rules  and  regulations  covering  the  collection  of  items 
which  come  under  this  head. 

The  same  is  true,  to  a  somewhat  less  extent,  perhaps, 
with  regard  to  the  regulation  of  the  premium  on  exchange, 
the  cost  of  transfers  by  wire,  and  the  limitations  to  the 
deposits  of  city  customers,  which  further  functions  may 
well  and  profitably  come  within  the  scope  of  each  local 
association  for  regulation. 

In  this  connection  each  member  of  the  St.  Joseph 
Clearing  House  Association  is  allowed  to  submit  a  list  of 
the  wholesale  jobbers  and  manufacturers  and  live-stock 
commission  merchants  to  whom  it  may  sell  exchange  at 
50  cents  per  $1,000,  and  the  list  must  be  approved  by 
the  association. 

St.  Louis  makes  a  like  charge  to  any  party  taking  a 
draft  drawn  by  any  bank  or  trust  company  member  of 
or  connected  with  the  clearing-house  association  on  New 
York,  Philadelphia,  or  Boston;  and  if  the  premium  thus 
estimated  on  the  amount  of  any  draft  or  check  does  not 
equal  15  cents,  then  the  charge  on  the  item  must  be  that 
sum.  This  rule,  however,  does  not  apply  to  the  purchase 
and  sale  of  exchange  between  members  of  the  clearing 
house  or  institutions  clearing  through  members. 

Upon  all  transfers  by  telegraph  by  members  of  the 
Wilmington  (N.  C.)  Clearing  House  a  charge  of  $1.50 
per  $1,000,  plus  the  cost  of  the  telegram,  is  made.  Trans- 
fers by  cable  command  the  premium  quoted  in  New 
York  at  the  time,  plus  the  cost  of  telegraphing.  Transfers 
by  telegraph  for  banks  and  city  customers,  exempt  from 
paying  exchange  at  not  less  than  $1  per  $1,000,  and  at  a 


Cleari7tg-House      Methods 

minimum  of  $2  per  $1 ,000  to  others;  for  counter  exchange, 
10  cents  minimum  and  5  cents  for  additional  purchases  at 
the  same  time. 

The  position  taken  by  the  New  York  Clearing  House 
Association  in  the  matter  of  collecting  out-of-town 
items  should  be  referred  to  in  this  connection.  It  is 
discussed  in  another  chapter,  to  which  the  reader  is 
referred.  The  same  remark  applies  to  the  foreign  depart- 
ment of  the  Boston  Clearing  House,  which  is  likewise 
presented  in  another  chapter. 

One  of  the  most  important  of  the  special  functions  of 
the  clearing  house,  to  which  attention  will  be  called,  is 
the  issue  of  clearing-house  loan  certificates  in  times  of 
panic.  By  this  means,  in  some  cases,  the  specie  reserves 
of  the  clearing-house  members  have  been  combined  in  a 
way  to  become  a  common  fund,  so  that  any  bank  that 
experienced  an  unusual  demand  for  specie  was  supported 
by  the  combined  reserves  of  all  the  banks.  The  bank 
thus  assisted  secures  the  other  members  against  loss  by 
depositing  with  a  committee,  appointed  for  the  purpose 
of  receiving  them,  its  securities  in  the  shape  of  stocks, 
bonds,  and  bills  receivable.  So  important  are  the  history, 
methods,  and  results  of  this  remarkable  device  that 
special  chapters  are  necessary  for  their  exposition. 

Various  clearing  houses  in  different  parts  of  the  country 
have  incorporated  into  their  rules  and  regulations  certain 
special  features,  some  of  which  are  worthy  of  mention. 
For  instance,  at  Altoona,  Pa.,  it  is  the  duty  of  the  asso- 
ciated members  to  report  to  the  secretary  of  the  associa- 
tion   any   flagrant   violation   of   commercial   or   financial 


National    Monetary     Commission 

integrity  on  the  part  of  anyone  having  business  relations 
with  them.  Furthermore,  the  soHcitation  of  accounts 
of  other  members  is  prohibited,  and  any  members  having 
accounts  of  the  same  depositors  shall  have  the  right  of 
ascertaining,  each  from  the  other,  the  extent  and  charac- 
ter of  the  loans  made  to  such  depositor.  It  is  also 
provided  that  when  a  depositor  of  any  member  bank 
applies  to  another  member  for  a  loan,  the  member  so 
applied  to  shall  have  the  right  to  ascertain  from  the 
applicant's  bank  whether  the  loan  had  been  previously 
offered  there  and,  if  refused,  the  reason  for  refusal. 

At  Philadelphia,  Pa.,  Chester,  Pa.,  and  Wilmington, 
Del.,  it  is  provided  that  the  associated  banks  shall  report 
at  once  to  each  other  the  names  of  individuals,  firms,  or 
corporations  whose  accounts  have  been  closed  on  account 
of  overdrawing,  depositing  worthless  checks,  or  otherwise 
defrauding  them. 

The  associated  banks  of  Minneapolis,  by  special  agree- 
ment, but  not  by  constitutional  provision,  have  appointed 
an  advertising  committee,  of  which  the  manager  of  the 
clearing  house  is  the  chairman,  to  which  is  submitted  all 
general  schemes  of  advertising.  The  schemes  are  sub- 
mitted in  writing  to  the  committee  by  the  solicitor  and 
action  taken  thereon.  Many  of  these  propositions  are  re- 
jected, and  what  is  known  as  clearing-house  advertising 
appears  only  in  the  best  mediums.  The  claim  is  made 
that  this  concerted  action  serves  to  secure  much  better 
rates  and  does  not  preclude  any  bank  from  placing  ad- 
vertisements in  any  other  direction  it  desires.  Chatta- 
nooga, Tenn.,  and  Fort  Wayne,  Ind.,  also  have  made  pro- 


Clearing-House      Methods 

vision  regulating  the  placing  of  advertisements  by  their 
member  banks.  The  regulations  of  the  Portland  (Me.) 
Association  state  that  no  member  shall,  by  advertisement, 
circular  letter,  or  publication,  reflect  unfavorably  upon  the 
responsibility  of  another  member. 

The  constitution  of  the  Rochester  Clearing  House  As- 
sociation provides  that  members  are  prohibited  from 
offering  a  higher  rate  of  interest  to  induce  a  customer  to 
change  his  account  from  one  bank  to  another  or  as  an 
offset  against  collection  charges. 

At  Seattle,  Wash.,  a  uniform  discount  rate  on  Canadian 
currency  has  been  agreed  upon,  as  follows:  For  the  first 
$  I  GO,  one-half  of  i  percent;  on  any  sum  in  excess  of  $ioo, 
one-eighth  of  i  per  cent. 


23 


/ 


Chapter  IV. 

POSSIBLE  DEVELOPMENTS  OF  THE  CLEARING-HOUSE 
SYSTEM. 

NEW  FUNCTIONS  TO  BE  EXERCISED — COUNTRY  CHECKS — 
TRANvSFER  OF  CURRENCY  FROM  POINT  TO  POINT — POS- 
SIBLE USE  OF  GOLD  CERTIFICATES — SPECIAL  EXAM- 
INERS— SETTLEMENT  OF  BALANCES — ADVANTAGES  OF 
THE  CASH  BASIS — CLEARING-HOUSE  DEPOSITORIES — THE 
USE   OF   DEPOSITORY   CERTIFICATES. 

The  clearing-house  system  is  becoming  a  definitely 
recognized  power  in  the  financial  methods  of  the  United 
States.  It  is  as  yet  in  its  infancy,  and  the  powers  that  the 
various  clearing  houses  possess  are  capable  of  develop- 
ment and  expansion  to  an  indefinite  degree.  The  clearing 
house,  which  was  begun  simply  as  a  labor-saving  device, 
has  united  the  banking  interests  in  various  communities 
in  closer  bonds  of  sympathy  and  union  and  has  developed 
into  a  marvelous  instrumentality  for  the  protection  of  the 
community  from  the  evil  effects  of  panics  and  of  bad  bank- 
ing. Clearing  houses  are  gradually  becoming  a  welding 
force  that  ultimately  will  bring  to  the  banking  business  of 
this  country  the  centralization  which  it  so  greatly  needs. 
In  the  course  of  time  rates  for  money  in  the  United  States 
will  become  more  and  more  on  a  par  with  those  prevailing 
in  European  money  centers,  and  then  the  clearing  houses 


Clearing-House      Methods 

of  the  various  financial  centers  of  this  country  will  be 
obliged  to  undertake  functions  which  as  yet  they  have 
only  discussed. 

As  money  rates  decrease  losses  from  bad  debts  must  be 
brought  to  a  minimum,  and  the  question  of  a  central 
agency,  which  shall  disseminate  information  regarding 
paper  outstanding  among  the  banks,  must  and  will  re- 
ceive the  attention  it  deserves. 

As  before  stated,  the  payment  of  uniform  rates  of  inter- 
est on  bank  deposits  has  already  been  taken  up  by  many 
of  the  associations  in  this  country,  with  the  result  that  fair 
and  equitable  rates  have  been  agreed  upon  to  be  paid  for 
balances.  The  time  is  near  at  hand  when  all  the  banks 
that  are  members  of  clearing  houses  will  be  obliged  to  sink 
their  differences  and  by  agreement  regulate,  monthly  or 
quarterly,  the  rate  of  interest  to  be  paid,  the  rate  to  be 
subject  to  change  according  to  the  varying  conditions  of 
the  money  market. 

More  careful  supervision  over  the  establishment  of  new 
institutions  will  be  necessary,  and  the  regulations  regard- 
ing nonmembers  clearing  through  members  will  also  re- 
ceive closer  attention. 

The  question  of  collecting  country  checks  is  now  being 
regulated  in  many  clearing  houses — a  matter  which  is 
specially  treated  in  one  of  the  chapters  of  this  book — and 
the  tirne  is  not  far  distant  when  this  subject  will  receive 
the  consideration  from  all  the  clearing  houses  to  which 
it  is  entitled. 

The  question  of  shipping  currency  by  express  from  one 
clearing  house   to    another  will,   in    time,   be  effectively 

20040 — 10 3  25 


National    Monetary     Commission 

dealt  with.  By  the  cooperation  of  the  various  associa- 
tions it  is  conceivable  that  the  scope  of  usefulness  of  the 
gold  certificates  issued  by  the  various  assistant  treasurers 
of  the  United  States,  payable  to  any  member  of  a  given 
clearing  house  in  the  city  in  which  the  subtreasury  issuing 
the  same  is  located,  which  is  now  confined  to  indorsement 
and  use  in  the  payment  of  clearing-house  balances  in  the 
city  of  issue,  could  be  enlarged  so  that  the  certificates 
could  be  used  in  the  liquidation  of  clearing-house  balances 
in  any  city  in  which  there  is  a  subtreasury,  or  be  sent 
through  the  mails  at  small  rates  to  the  sending  bank, 
thereby  becoming  a  safe  medium  of  exchange  between 
large  centers,  minimizing  loss  and  saving  the  transporta- 
tion of  great  sums  of  money.  The  Government  might 
make  a  small  charge  for  their  redemption  if  it  redeemed 
them  in  any  city  other  than  the  one  of  issue. 

It  is  significant  of  the  ever-widening  scope  of  clearing- 
house supervision  and  usefulness  that  several  associations 
have  in  the  past  few  years,  after  giving  careful  considera- 
tion to  the  subject,  appointed  special  bank  examiners, 
assisted,  where  necessary,  by  trained  experts  under  rigid 
regulation  and  ready  to  go  to  work  at  a  moment's  notice. 
This  departure  has  been  deemed  of  sufficient  importance 
to  warrant  a  complete  explanation  of  the  conditions  under 
which  these  examiners  operate,  and  a  special  chapter  is, 
therefore,  devoted  to  it. 

The  settlement  of  balances  is  a  matter  which  should 
be  most  carefully  considered  by  the  banking  and  business 
community,  for  the  proper  management  of  settlements 
will  do  a  great  deal  toward  enhancing  the  prosperity  of 


26 


Clearing-House      Methods 

the  community.  Bankers  some  time  plead  for  a  more 
elastic  currency,  but  what  is  needed  is  more  elasticity  in 
the  assets  of  the  banks.  What  is  wanted  are  assets  that 
are  readily  converted  into  cash  in  times  of  panic,  and 
which  will  pay  depositors  as  well  as  permit  new  loans.  In 
such  times  banks  need  expansion  in  the  right  direction, 
and  not  contraction.  Cash  settlements  in  all  the  clearing 
houses  of  the  United  States  would  be  conducive  to  better 
banking,  for,  under  this  rule,  the  clearing-house  banks 
would  be  obliged  to  keep  themselves  prepared  at  all 
times  to  meet  large  drafts  upon  them  through  the  clear- 
ings. On  the  other  hand,  when  clearings  are  settled  by 
drafts  upon  financial  centers,  if  the  banks  are  not  prepared 
for  emergencies,  they  borrow  from  the  institutions  in 
those  centers,  and  sometimes  thereby  expand  themselves 
beyond  prudent  limits. 

Bank  officers  often  loan  money  to  manufacturing  cor- 
porations, which  invest  the  same  in  plant,  and  are  for 
this  reason  unable  to  meet  their  notes  when  due.  Such 
loans  become  fixed  assets  of  the  bank,  and  are  not  avail- 
able in  times  of  financial  stringency.  The  banks  thereby 
become,  to  a  certain  extent,  stockholders  in  the  corpora- 
tions. If  the  banks  compel  the  payment  of  such  loans 
in  times  of  trouble,  they  thereby  restrict  the  operations 
of  the  manufacturing  concerns,  throw  men  out  of  em- 
ployment, and  thus  disarrange  the  entire  industrial  sys- 
tem of  the  community. 

Banks  are  often  led  to  invest  their  money  in  unavail- 
able assets,  simply  because  they  feel  that  they  will  not 
be  called  upon  to  pay  out  any  large  amount  of  cash,  either 


27 


National    Monetary     Commission 

to  their  depositors  direct,  or  through  the  clearing  house. 
Consequently,  the  settlement  of  balances  in  anything  but 
cash,  or  its  equivalent,  is  liable  at  times  to  affect  the 
whole  economic  condition  of  the  community.  If  a  care- 
ful study  were  to  be  made  of  the  most  prosperous  of  our 
interior  cities  it  would  be  found  that  the  banks  in  these 
cities  settle  their  clearing-house  balances  on  a  cash  basis. 

Cash  settlements  at  the  clearing  houses  of  interior- 
cities  would  compel  the  banks  to  keep  more  money  in 
their  vaults.  This  would  enable  them  more  readily  to' 
meet  the  requirements  of  their  customers.  The  need  of 
outside  assistance  would  be  in  a  measure  removed,  and 
thereby  all  the  financial  institutions  of  the  country  would 
be  kept  upon  a  more  even  basis. 

Some  large  clearing  houses  would  find  it  advantageous 
to  provide  depositories  in  which  currency  of  all  denomi- 
nations could  be  deposited  in  vaults,  and  certificates 
issued  therefor  that  could  be  used  in  the  settlement  of 
balances.  Then,  during  the  crop-moving  periods  and  at 
other  times  when  there  is  a  demand  for  small  bills,  they 
could  be  supplied  from  the  clearing-house  vaults.  By 
such  an  arrangement  the  banks  would  not  be  obliged, 
as  has  often  been  the  case,  to  give  up  one  form  of  money 
which  they  desire  to  keep  for  the  sake  of  procuring 
another  form,  and  therefore  they  would  be  able  to  work 
to  a  greater  or  lesser  extent  independently  of  the  sub- 
treasuries. 

The  New  York  and  Boston  clearing  house  associations 
have  recently  made  provision  for  their  members  to 
deposit   currency,    as   suggested   above,    taking   clearing- 

28 


Clearing-House      Methods 

house  currency  certificates  therefor,  which  are  hmited  in 
their  use  to  the  payment  of  balances  in  the  clearing 
house,  the  same  as  clearing-house  certificates  for  gold, 
and  the  idea  has  worked  out  very  successfully.  In  view 
of  the  success  of  the  idea  in  these  cities,  it  seems  very 
probable  that  some  of  the  other  large  clearing  houses 
will  take  the  matter  under  advisement. 

These  and  many  other  matters  might  be  taken  up  by 
clearing  houses  and  brought  to  the  same  degree  of  per- 
fection as  the  loan  certificate,  an  instrumentality  that 
has  been  of  inestimable  value  to  the  business  world. 


29 


Chapter  V. 

THE  ADMINISTRATION  OF  CLEARING  HOUSES. 

I.IST   OF   OFFlCIAIvS — DUTIES    OF    OFFICERS — COMMITTEES — 
ANNUAL    MEETINGS. 

The  government  of  a  clearing-house  association  in  the 
United  States  is,  theoretically,  vested  in  a  president, 
vice-president,  secretary,  treasurer,  manager,  and  a  clear- 
ing-house committee,  sometimes  termed  "committee  of 
management"  or  "executive  committee."  Not  every 
association,  however,  is  as  completely  officered  as  this;  in 
fact,  there  are  many  associations  that  do  not  have  the 
full  list  of  officials  named.  A  president,  a  manager,  and 
an  executive  committee,  however,  are  found  in  the  organi- 
zation of  nearly  every  clearing-house  association,  for 
these  functionaries  are  practically  indispensable.  The 
other  officials  mentioned  are  lacking  in  various  associa- 
tions, especially  in  those  located  in  smaller  cities,  their 
duties  being  performed  by  some  of  the  other  officers. 

It  is  the  duty  of  the  president  to  preside  at  all  the 
meetings  of  the  association.  As  a  rule,  he  has  power  to 
call  special  meetings  whenever  he  may  deem  it  advisable, 
and  must  do  so  upon  the  request  of  a  specified  number  of 
the  members.  He  exercises  a  general  supervision  over 
clearing-house  affairs,  and  performs  the  duties  usually 
devolving  upon  an  executive  officer.  In  many  cases  he 
is  ex  officio  chairman  of  the  clearing-house  committee 
and  of  all  standing  committees.  He  is  elected  annually, 
with  few  exceptions,  and  serves  without  compensation. 


30 


Clearijig-House      Methods 

The  vice-president  performs  the  duties  of  the  president 
in  the  latter's  absence.  The  duties  of  secretary  and 
treasurer  are  frequently  performed  by  the  manager.  The 
secretary  keeps  the  record  of  the  proceedings  of  the  meet- 
ings of  the  association,  and  performs  aU  the  duties  usu- 
ally pertaining  to  that  office. 

The  treasurer  must  account  for  the  funds  intrusted  to 
his  keeping,  and  must  pay  out  the  same  upon  the  written 
order  of  the  president,  countersigned  by  the  manager,  or 
if  the  latter  be  at  the  same  time  treasurer  of  the  associa- 
tion, then  upon  the  written  order  of  the  clearing-house 
committee,  or  upon  any  other  authority  that  the  associa- 
tion may  designate. 

The  manager  is  either  elected  by  the  association  or 
appointed  by  the  executive  committee,  to  serve,  as  a  rule, 
one  year,  although  almost  invariably  he  is  reelected  from 
year  to  year  for  an  indefinite  period.  In  some  of  the 
large  cities  a  heavy  bond,  with  sureties,  is  required  of  the 
manager,  varying  in  amount  from  $10,000  to  $20,000,  and 
in  one  or  two  instances  the  requirement  is  as  high  as 
$50,000.  In  cities  where  no  cash  is  used  in  the  settlement 
of  balances  there  is,  of  course,  much  less  opportunity  for 
fraud  on  the  part  of  the  manager,  and  hence  in  such  cases, 
as  a  rule,  no  bond  is  demanded.  In  many  of  the  smaller 
cities,  where  the  manager's  duties  and  responsibilities 
are  light,'  and  where  he  is  regularly  employed  in  some 
other  capacity,  his  services  are  not  infrequently  gra- 
tuitous. 

The  manager  has  immediate  charge  of  all  business  at 
the  clearing  house,  subject  to  the  control  of  the  clearing- 


31 


National    Monetary     Commission 

house  committee.  The  employees  and  the  settHng  clerks 
and  messengers  from  the  banks,  while  at  the  clearing 
house,  are  under  his  immediate  direction.  He  imposes 
and  collects  fines  for  violations  of  the  rules  of  the  associa- 
tion, has  supervision  of  all  the  records  of  clearances  and 
settlements,  and  sees  that  the  clearing  house  and  the 
property  connected  therewith  are  kept  in  order.  He  makes 
such  annual  reports  and  performs  such  other  duties  as  may 
be  required  of  him. 

The  clearing-house  committee  (also  called  the  "committee 
of  management"  and  "executive  committee")  is  usually 
composed  of  from  three  to  five  members,  chosen  from  the 
most  capable  and  experienced  bankers  in  the  association. 
In  one  case  which  has  come  to  notice  the  membership  of  this 
committee  consists  of  but  two  members,  while  it  some- 
times exceeds  five,  as  at  Philadelphia  and  Pittsburg,  where 
there  are  six  members  besides  the  president,  who  is  ex 
officio  a  member,  and  at  St.  Joseph,  where  each  bank  has 
a  representative  on  the  clearing-house  committee,  the 
number  of  bank  members  at  the  present  writing  being 
eight,  thus  making  eight  members  of  the  committee. 

The  clearing-house  committee  is  elected  annually,  and 
is  by  far  the  most  important  of  all  the  committees.  In 
it  is  vested  almost  absolute  power,  the  direction  of  practi- 
cally the  whole  machinery  of  the  clearing  house  resting  in 
its  hands.  It  is  empowered  by  the  association  to  procure 
suitable  rooms  for  the  clearing  house,  to  provide  proper 
books,  stationery,  fuel,  furniture,  and  whatever  else  may 
be  necessary  for  the  convenient  transaction  of  business; 
to  appoint  a  manager,  except  where  this  power  is  directly 


32 


Clearing-House      Methods 

exercised  by  the  association,  and  generally  to  supervise 
affairs.  It  draws  on  members  for  their  share  of  the  ex- 
penses, fixes  the  salaries  of  the  clerks  in  the  clearing  house, 
and  has  the  power  to  remove  the  same,  and  the  manager 
as  well,  whenever  it  may  deem  such  action  to  be  for  the 
best  interest  of  the  association. 

Not  infrequently  the  clearing-house  committee  is 
authorized  to  examine  a  member,  whenever  it  may  seem 
necessary  to  it  to  do  so,  or  whenever  requested  to  do  so 
by  a  specified  number  of  other  members,  and,  in  case  the 
member's  condition  justifies  it,  to  demand  sufficient 
securities  for  the  protection  of  its  balances  resulting  from 
the  exchanges  of  the  clearing  house.  It  also  has  power, 
whenever  it  may  seem  necessary  for  the  protection  of  the 
other  banks,  to  suspend  a  member  from  the  association 
until  the  latter  takes  action  upon  it. 

The  clearing-house  committee,  in  most  cases,  holds  regu- 
lar meetings  monthly,  or  oftener.  Stated  examinations  of 
funds  and  securities  are  often  required,  as,  for  example, 
at  San  Francisco,  where  the  committee  must  examine,  at 
least  quarterly,  all  securities  and  deposits  of  the  associa- 
tion in  its  charge. 

In  addition  to  the  clearing-house  committee,  there  is 
frequently  a  conference  committee,  a  nominating  com- 
mittee, an  arbitration  committee,  a  committee  on  admis- 
sions, an  exchange  committee,  and,  in  special  emergencies, 
a  loan  committee.  No  one  association  has  all  of  these 
committees,  but  the  New  York  Clearing  House  has  all 
but  the  exchange  committee.  Most  clearing  houses  are 
too  small  and  their  duties  too  simple  to  require  so  ex- 


33 


National    Monetary     Commission 

tensive  a  division  of  powers ;  hence,  as  a  rule,  we  find  only- 
one  or  two  committees  at  most,  in  addition  to  the  clearing- 
house committee. 

The  conference  committee  is  elected  annually  to  serve 
in  special  emergencies,  and  its  duties  consist  in  acting  in 
conjunction  with  the  clearing-house  committee  whenever 
the  suspension  of  a  member  becomes  a  question  of  ex- 
pediency. There  must  be  at  least  a  majority  of  each 
committee  present  to  suspend  a  member,  and  a  unani- 
mous vote  is  necessary  to  carry.  In  case  of  a  suspension 
the  clearing-house  committee  must  forthwith  call  a  general 
meeting  of  the  association  to  take  the  matter  into  con- 
sideration. 

The  nominating  committee  is  elected  annually,  and  is 
charged  with  the  duty  of  presenting  to  the  association 
at  each  annual  meeting  the  names  of  candidates  for 
president  and  secretary  and  for  membership  upon  the 
various  committees. 

The  arbitration  committee  is  elected  by  ballot  at  each 
annual  meeting.  Its  duty  is  to  decide  all  disputes  that 
may  be  submitted  to  it  by  both  parties  thereto,  a  member 
of  the  association  being  one  of  them.  In  associations 
where  no  arbitration  committee  exists  its  function  is 
usually  performed  by  the  clearing-house  committee. 

The  committee  on  admissions  is  also  elected  by  ballot 
annually,  and  the  clearing-house  committee  refers  to  it 
for  examination  all  applications  for  membership  in  the 
association. 

Where  an  association  has  an  exchange  committee,  the 
committee  is  elected  each  year.     It  is  authorized   and 


34  . 


Clearing-House      Methods 

required  from  time  to  time  to  prepare  schedules  of  "rates 
of  exchange  on  out-of-town  items,  including  among  them 
those  taken  as  cash  received  for  collection,  or  held  as 
security  for  loans,  or  that  might  be  discounted  subject  to 
collection. 

The  clearing-house  association  holds  an  annual  meeting 
for  the  purpose  of  electing  officers  and  committees  and 
for  the  transaction  of  other  business.  The  quorum  is 
usually  fixed  at  a  majority  of  all  the  associated  banks. 
In  some  instances,  however,  it  is  fixed  at  two-thirds,  and 
in  a  few  cases  even  as  low  as  one-third,  of  all  the  members. 
Sometimes  a  specified  number  is  designated  as  constituting 
a  quorum.  Each  bank  is  expected  to  be  represented  at 
the  annual  meeting  by  one  or  more  of  the  officers,  but 
usually  is  allowed  only  one  vote.  An  exception  to  this 
rule  is  the  association  at  Worcester,  Mass.,  where  two 
votes  are  allowed.  For  failure  to  be  represented  a't  an 
annual  meeting  a  fine  of  from  $2  to  $10  is  generally  im- 
posed. It  is  the  duty  of  the  association  to  fix  the  salary 
of  the  manager,  admit  banks  to  membership,  and,  when 
occasion  demands,  to  suspend  or  expel  members.  In 
some  of  the  large  cities  the  associations  receive  in  special 
trust,  and  issue  certificates  for,  such  United  States  gold 
coin  as  any  of  the  associated  banks  may  deposit  for  safe 
keeping  for  clearing-house  purposes. 


?5 


Chapter  VI. 

THE  SETTLEMENT  OF  CLEARING-HOUSE  B.\LANCES. 

RESULTS      ACCOMPLISHED      BY      SETTLEMENTS  —  RATIO       OF 
BALANXES  TO  CLEARINGS  —  SETTLEMENTS  WITH 

MONEY CLE-ARIXG-HOUSE     SETTLEMENTS     IN     C.AN'ADA — 

MON'EY       IN       L-ABELED       PACK,\GES  —  OBJECTIONS       TO 
SIL\'ER — METHODS     OF     SETTLING     BALANCES     \^TTHOUT 

MON'EY ADVANTAGES       OF      THE       MANAGER'S       CHECK 

0\^R   SETTLEMENTS    IN    CASH. 

The  exchange  of  items  between  the  banks  accom- 
plishes two  results:  First,  it  places  at  the  proper  banks 
for  payment  the  items  to  be  exchanged  which  the  several 
banks  hold;  and,  second,  it  determines  the  difference 
between  the  amoimt  of  the  items  held  by  each  bank 
against  all  the  others  and  the  amomit  held  by  all  the 
other  banks  against  each  individual  bank.  The  differ- 
ence constitutes  the  balance  which  is  to  be  settled. 

A  bank  can  not  know  whether  its  exchanges  at  the 
clearing  house  will  bring  it  out  a  debtor  or  a  creditor 
imtil  the  settling  clerk  returns  from  the  clearing  house. 
It  is  a  ver\-  rare  occurrence  for  a  complete  offset  to  take 
place  in  anv  bank's  exchanges;  that  is,  for  the  amounts 
sent  to  the  clearing  house  to  exactly  equal  the  amounts 
received,  in  which  case,  of  course,  there  would  be  no 
balance.  Each  bank  expects  a  difference  one  way  or  the 
other,  ranging  from  a  few  cents  to  a  ven.*  large  amount. 
In  a  great  city  a  bank  may  be  a  creditor  one  day  to  the 
extent  of  several  hundreds  of   thousands  of   dollars  and 

36 


Clearing-House      Methods 

the  next  day  a  debtor  to  a  similar  amount.  It  is  of  the 
utmost  importance,  therefore,  that  each  bank  should  be 
prepared  to  meet  any  balance  which  may  appear  against 
it  at  the  clearing  house. 

The  ratio  of  balances  to  clearings  depends  partly  upon 
the  number  of  banks,  but  much  more  upon  the  amount 
and  character  of  their  business  and  upon  their  relations 
one  to  another.  This  is  illustrated  by  figures  which 
have  just  been  collected,  covering  the  transactions  for 
the  year  1908.  At  Pittsburg,  with  20  members  and  128 
nonmembers  clearing  through  members,  the  balances 
were  16.5  per  cent  of  the  clearings;  at  Buffalo,  with  11 
members  and  7  nonmembers,  12  per  cent;  at  Chicago, 
with  20  members  and  40  nonmembers  clearing  through 
members,  7.5  per  cent;  at  Philadelphia,  with  31  members 
and  I  nonmember,  11.5  per  cent;  at  St.  Louis,  with  17 
members  and  35  nonmembers,  9.3  per  cent;  while  in 
New  York,  during  the  fifty-four  years  of  its  existence, 
the  percentage  of  balances  to  clearings  have  been  only 
4.64  per  cent,  notwithstanding  the  operation  of  the 
United  States  assistant  treasurer,  who  almost  always  has 
a  hea\^  debit  balance. 

The  more  nearly  the  banks  stand  on  an  equality  with 
one  another,  the  more  nearly  will  their  transactions 
approach  a  complete  offset,  which,  of  course,  would  leave 
no  balance  to  settle. 

The  methods  of  settlement  of  clearing-house  balances 
may  be  divided  in  a  general  way  into  two  classes:  First, 
settlements  with  money;  and,  second,  settlements  with- 
out money. 

37 


National    M on  et ar y     Commission 

A  clearing  house  acts  merely  as  the  agent  of  the  banks 
in  the  payment  of  the  balances.  It  pays  to  the  creditor 
banks  the  money  it  receives  from  the  debtor  banks.  As 
soon  as  the  result  of  the  exchanges  is  known  the  debtor 
banks  may  begin  the  payment  of  their  balances,  all  of 
which  may  be  paid  in  before  the  expiration  of  a  specified 
time,  usually  two  or  three  hours  after  the  exchanges 
have  been  completed.  Failure  on  the  part  of  any  mem- 
ber to  meet  its  requirements  promptly  would  subject  it 
to  a  fine. 

Any  kind  of  United  States  money  is  acceptable  in 
most  of  the  small  clearing  houses;  but  in  a  majority  of 
the  large  ones  certain  kinds  of  money  are  not  acceptable. 
The  following  are  illustrative  examples:  At  Baltimore 
gold  coin,  greenbacks,  and  certificates,  redeemable  in 
coin,  are  used,  and  silver  is  accepted  only  for  fractional 
parts  of  thousands;  at  Buffalo,  United  States  treasury 
certificates.  United  States  legal-tender  notes,  national- 
bank  notes,  gold  and  silver  certificates,  and  gold  coin  are 
used;  at  Milwaukee,  gold  coin  and  currency;  at  St. 
Paul,  all  forms  of  currency  except  silver  coins;  and  at 
San  Francisco,  Los  Angeles,  Cal.,  and  Portland,  Oreg., 
gold  coin  is  used  exclusively. 

About  40  per  cent  of  the  clearing  houses  of  the  United 
States  settle  their  balances  either  in  cash  or  by  manager's 
check  payable  in  cash.  In  Canada,  however,  all  the 
clearing  houses,  except  that  at  Hamilton,  settle  in  gov- 
ernment legal- tender  notes.  Settlements  in  Hamilton  are 
made  by  drafts  upon  the  head  offices  or  agents  of  the 
respective  banks,  on  Montreal,  in  favor  of  the  clearing 


38 


Clearing-House      Methods 

bank,  which  gives  its  own  drafts  on  Montreal  to  the 
banks  in  credit. 

Some  clearing  houses,  especially  the  larger  ones,  require 
that  money,  when  paid  in  by  the  banks,  shall  be  assorted 
and  put  up  in  packages,  each  package  to  contain  bills  of  a 
given  kind  and  denomination,  and  when  the  balances  are 
sufficient,  to  consist  of  specified  amounts,  usually  $i,oqo, 
$5,000,  and  $10,000,  respectively.  For  instance,  at  Mil- 
waukee, all  currency  paid  to  the  clearing  house,  when  the 
amounts  are  sufficient,  must  be  put  up  in  packages  of 
$5,000  or  $10,000  each.  The  inside  parcels  of  the  pack- 
ages must  bear  the  number  of  the  bank  putting  up  the 
same,  with  the  date  thereon.  Such  packages  must  be 
securely  bound  with  twine  or  tape,  with  a  wide  paper  band 
around  the  center,  fastened  with  wax,  bearing  the  seal  of 
the  member  putting  them  up,  and  the  date  of  sealing.  No 
notes  of  a  less  denomination  than  $5  (except  to  make 
change)  or  over  $1,000  can  be  paid  in.  Likewise  all  gold 
coin  must  be  put  up  in  strong  canvas  bags,  of  $5,000  each, 
and  such  bags  must  have  suitable  labels  bearing  the  name 
of  the  sealing  member,  amount  of  contents,  and  date  of 
sealing.  For  all  gold  coin  or  currency  paid  in,  in  amounts 
less  than  $5,000,  the  value  of  the  parcel  or  package  must 
be  guaranteed  by  the  bank  (whose  number  it  bears)  to  the 
bank  breaking  the  package  for  twenty-four  hours  after 
receiving  it,  but  in  no  case  can  claims  be  made  after  a 
package  has  been  paid  to  any  party  not  a  member  of  the 
association. 

Silver  coin  is  not  excluded  from  settlements  in  clearing 
houses  in  the   United  States   because  of  any   prejudice 


39 


National    Monetary     Commission 


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40 


Clearing-House      Methods 

against  it  as  money,  but  because,  owing  to  the  enormous 
amount  of  clearing-house  transactions,  its  bulk  would 
render  it  too  cumbersome  and  inconvenient  for  handling. 
For  the  same  reason  it  is  not  so  desirable  as  other  forms  of 
money  in  large  transactions  of  any  kind. 

A  receipt  is  given  at  the  clearing  house  to  each  debtor 
bank  as  soon  as  its  balance  is  paid.  There  is  presented 
herewith  a  reproduction  of  the  form  used  at  Buffalo. 

This  receipt  is  filled  out  by  the  clearing-house  clerk 
showing  the  amount  due  from  the  debtor  bank  to  the 
clearing  house.  Its  authenticity  is  established  by  the 
signature  of  the  manager  at  the  top.  This  receipt  is 
taken  away  by  the  debtor  bank's  messengc-,  who  later 
returns  with  the  necessary  funds.  The  manager  then 
signs  the  receipt  in  the  usual  place,  and  in  this  condition 
it  becomes  a  voucher  to  the  debtor  bank  for  the  payment 
it  has  made. 

The  clearing-house  clerks  of  these  banks  have  already 
carried  back  a  receipt,  of  which  a  copy  is  given  herewith, 
that  is  likewise  "  viseed  "  by  the  manager  at  the  top.  This 
receipt  is  then  signed  by  the  cashier  of  the  creditor  bank 
and  sent  at  the  hands  of  two  trusted  messengers,  who  re- 
ceive the  funds  from  the  clearing-house  manager.  This 
receipt  in  turn  is  kept  by  the  clearing  house  as  its  voucher 
for  the  payment  made.  A  receipt  is  sometimes  written 
by  the  clerk  receiving  the  balance  in  a  book  kept  by  the 
manager  for  that  purpose,  but  a  more  common  method  is 
one  similar  to  that  described  as  given  by  the  bank. 

There  are  no  less  than  five  different  methods  of  settling 
balances,  in  whole  or  in  part,  without  the  use  of  money 

20040 — 10 4  41 


0  n 


Clea7^ing-House      Methods 

at  the  clearing  house.  They  are  (i)  by  manager's  check 
on  debtor  banks  given  to  creditor  banks;  (2)  by  borrowing 
and  loaning  balances  without  interest;  (3)  by  borrowing 
and  loaning  balances  with  interest;  (4)  by  the  use  of  one 
or  more  of  four  forms  of  certificates,  viz,  gold  and  cur- 
rency depository  certificates,  United  States  assistant 
treasurer  certificates,  and  clearing-house  loan  certificates; 
and  (5)  by  draft  on  another  city. 

When  money  is  not  used  in  the  adjustment  of  balances 
at  the  clearing  house,  one  of  the  most  common  methods 
of  settlement  is  by  manager's  check  on  debtor  banks  in 
favor  of  creditor  banks.  In  such  cases  the  creditor  banks 
send  clerks  to  the  clearing  house  to  receive  the  manager's 
checks,  which  may  be  cashed  by  the  debtor  banks,  ex- 
changed for  cashier's  checks  or  exchange  on  another  city, 
or  sent  through  the  clearings  on  another  day.  Thus,  at 
New  Orleans,  L-a.,  Jacksonville,  Fla.,  Kansas  City,  Mo., 
and  other  points,  manager's  checks  are  used  and  are 
cashed  on  the  afternoon  of  the  same  day  they  are  issued, 
while  at  Cincinnati,  Ohio,  Fort  Wayne,  Ind.,  and  Dayton, 
Ohio,  banks  exercise  the  option  of  collecting  their  checks 
the  same  day  or  of  sending  them  through  the  exchanges 
on  the  day  following.  At  Danville,  111.,  the  balances  are 
settled  direct  between  creditor  and  debtor  banks,  and  not 
through  the  clearing  house,  as  is  customary. 

The  liability  of  the  clearing  house  for  manager's  checks 
usually  ceases  at  3  o'clock  on  the  day  of  issue,  so  that 
when  they  are  carried  over  it  is  done  at  the  risk  of  the 
holder.  Where  banks  contribute  to  the  expense  of  the 
clearing  house  in  proportion  to  their  average  daily  clear- 


43 


National    Monetary     Commission 

ings  for  a  given  time,  they  often  prefer  to  collect  on  the 
day  of  issue  rather  than  increase  their  exchanges,  and 
thus  their  expenses,  by  having  the  manager's  check 
cleared. 

With  all  its  various  disadvantages  there  is  one  important 
advantage  of  the  manager's  check  over  settlements  in 
cash  at  the  clearing  house:  By  its  use  only  one  transfer 
of  cash  is  necessary  in  making  settlements,  and  thus  the 
risk  is  greatly  diminished. 

The  second  mode  of  settlement,  other  than  on  a  cash 
basis,  is  by  borrowing  and  loaning  balances  without 
interest.  At  Chicago  and  Pittsburg  this  method  is 
practiced  as  a  matter  of  convenience  to  the  several  mem- 
bers. After  the  exchanges  have  been  made  and  the 
balances  determined,  a  certain  length  of  time  is  devoted 
to  this  transfer. 

The  third  method  is  that  of  borrowing  and  loaning 
balances  upon  interest,  as  practiced  at  Boston. 

The  fourth  method  is  that  of  employing  some  form  of 
certificate.  Many  of  the  large  clearing  houses  provide 
for  a  depository  to  receive  in  special  trust  such  United 
States  gold  coin  as  any  of  the  banks  belonging  to  the 
association  may  voluntarily  deposit  with  it  for  safe- 
keeping, upon  which  certificates  may  be  issued,  to  be 
used  in  the  settlement  of  clearing-house  balances.  Such 
certificates  are  usually  issued  in  denominations  of  $5,000 
and  $10,000,  and  are  negotiable  only  among  the  asso- 
ciated banks.  Many  of  the  clearing  houses  impose  a  fine 
for  their  transfer  to  any  other  party  than  a  member  of 
the  association. 


44 


Clearing-House      Methods 

Coin  certificates  were  devised  by  F.  W.  Edmunds,  of 
New  York,  and  came  into  use  about  1857.  The  Bank  of 
America  first  acted  as  a  depository,  but  after  the  beginning 
of  the  greenback  epoch  the  associated  banks  chose  the 
United  States  subtreasury  as  such  depository  for  both 
gold  and  currency.  When  the  new  clearing  house  in 
Cedar  street  was  occupied,  the  gold  deposits  were  trans- 
ferred to  the  magnificent  vaults  with  which  it  is  provided, 
and  these  at  the  present  time  hold  a  very  heavy  deposit 
of  gold,  as  well  as  a  very  large  amount  of  currency,  against 
which  has  been  issued  clearing-house  certificates  as  before 
mentioned.  The  associations  in  practically  all  of  the 
large  cities  of  the  United  States  now  use  these  gold  de- 
pository certificates  in  the  settlement  of  clearing-house 
balances. 

Clearing-house  loan  certificates  are  issued  only  in 
emergencies,  as  explained  in  the  chapter  devoted  to 
that  subject.  The  period  during  which  balances  are 
settled  by  such  instruments  lasts  usually  only  three  or 
four  months,  or  until  the  financial  disturbance  which 
called  them  forth  has  subsided. 

The  fifth  method  is  by  draft  on  some  other  city.  In 
some  places  the  option  is  given  of  settling  in  cash  or  by 
draft,  as  at  Austin,  Tex.;  Charleston,  S.  C;  Frederick, 
Md. ;  Jacksonville,  Fla. ;  Kansas  City,  Mo.;  New  Orleans, 
La. ;  Rochester,  N.  Y. ;  and  Saginaw,  Mich.  In  others  set- 
tlements are  made  exclusively  by  drafts  on  another  city. 
Among  these  are  Syracuse,  N.  Y. ;  Worcester,  Mass.;  Fall 
River,  Mass.;  Fremont,  Ohio;  Hartford,  Conn.;  Holyoke 
and  Lowell,  Mass.;  and  Binghamton,  N.  Y.     Sometimes 


45 


National    Monetary     C  omm  is  s  io 


n 


foreign  drafts  are  used  in  payments  of  equal  thousands 
only,  as  at  Wilmington,  Del.,  and  Chester,  Pa. 

Generally  speaking,  about  40  per  cent  of  the  clearing 
houses  of  the  United  States  use  drafts  on  other  cities  in 
paying  their  balances.  About  30  per  cent  settle  by 
manager's  check,  and  about  25  per  cent  settle  by.  cash 
alone,  the  remaining  5  per  cent  settling  by  a  combination 
of  two  or  more  of  the  foregoing  methods. 

Clearing  houses  located  in  New  England  settle,  as  a 
rule,  with  drafts  on  Boston  or  New  York,  or  both.  Clear- 
ing houses  in  the  vicinity  of  Philadelphia  usually  set- 
tle with  drafts  on  that  city  or  on  New  York,  and  those 
located  in  that  part  of  the  country  lying  east  of  the  Missis- 
sippi River  settle  more  or  less  by  draft  on  New  York  or 
Chicago.  Settlement  is  also  sometimes  made  by  draft 
on  some  of  the  larger  cities,  such  as  Baltimore,  Washing- 
ton, Savannah,  Kansas  City,  Detroit,  Omaha,  and  San 
Francisco. 


46 


Chapter  VII. 

CLEARING-HOUSE  EXCHANGES. 

IvOCATlON  OF  CLEARING  HOUSES — ARRANGEMENT  OF  FUR- 
NITURE— HOUR  OF  MAKING  EXCHANGES — CLEARING  MAT- 
TER  CHARACTER   OF  INDORSEMENTS MESSENGERS  AND 

SETTLING    CLERKS — CONDUCTING    THE    EXCHANGES — DE- 
TERMINING  BALANCES — TWO   CLEARINGS   A   DAY. 

No  city  has  more  than  one  bank  clearing  house.  The 
location  of  the  clearing  house  is  always  as  near  the  center 
of  the  banking  district  as  possible.  It  is  especially  impor- 
tant that  this  should  be  so  in  a  large  city,  where  the  banks 
are  numerous  and  often  scattered  over  a  considerable  area. 
None  of  the  associations,  except  the  one  at  New  York, 
owns  its  clearing-house  property.  Instead,  the  various 
organizations  occupy  rented  quarters,  usually  in  one  of 
the  banks  belonging  to  the  association,  and  these  they 
have  equipped  with  the  necessary  furniture,  stationery, 
and  desks  for  the  various  members. 

The  desks  are  sometimes  arranged  in  straight  rows, 
and  sometimes  in  elliptical  curves,  and  in  a  few  cases 
they  are  placed  like  the  desks  in  a  schoolroom.  It  is 
not  uncommon  in  small  places  for  the  clerks  to  meet 
and  make  their  exchanges  around  a  table,  and  occasionally 
the  same  rule  prevails  in  large  centers. 

Many  ingenious  contrivances  are  wrought  out  in  some 
of  the  exchange  rooms,  as  well,  also,  as  unique  features 
of  decoration.     For  example,  on  the  walls  of  the  room 


47 


National    Monetary     Commission 

at  Buffalo  is  an  ideal  conception  of  the  leading  clearing 
houses  of  the  country,  with  New  York  in  the  center  and 
the  large  cities  grouped  around  it.  At  Pittsburg  the 
arrangement  of  the  desks,  lights,  and  manager's  quarters 
jS  unexcelled  for  beauty  and  artistic  taste,  except  it  be 
at  New  York.  The  manager's  desk  is  connected  by  a 
pneumatic  tube  with  the  bank  below,  through  which 
small  sums  of  money  are  blown  when  needed  to  make 
change  in  the  settlement  of  balances.  At  Providence 
there  are  two  rows  of  desks,  with  that  of  the  manager 
at  the  end.  Each  bank  is  represented  by  a  single  clerk. 
Immediately  upon  his  arrival  at  the  clearing  house  he 
deposits  with  the  manager's  assistant  a  credit  ticket,  and 
then  proceeds  to  deposit  his  items  in  stationary  boxes, 
located  on  the  desks  of  the  members.  Each  clerk  has  a 
key  to  his  own  box,  and  after  distributing  his  checks, 
he  takes  his  place  on  the  inside  of  the  row  of  desks  and 
there  performs  the  duties  of  a  settling  clerk. 

Many  of  the  smaller  clearing  houses  do  not  rent  perma- 
nent quarters,  but  instead  the  banks  belonging  to  the 
association  act  as  clearing  agents  in  rotation,  the  cashier, 
or  some  other  official  of  the  bank  where  the  clearings 
for  the  time  being  are  made,  acting  as  manager.  At 
Hastings,  Nebr.,  for  instance,  the  banks  alternate  weekly; 
at  Jacksonville,  111.,  monthly;  and  at  Bay  City,  Mich., 
once  in  two  months.  At  Eowell,  Mass.,  a  clearing  bank 
is  chosen  at  each  annual  meeting  of  the  association. 

Each  clearing  house  determines  for  itself  the  time 
when  its  daily  exchanges  shall  be  made,  and  as  prac- 
tically the  only  criterion  in  selecting  an  hour  is  the  con- 


48 


Clearing-House      Methods 

venience  of  the  several  members,  it  is  not  surprising 
that  there  is  a  wide  diversity  among  associations  in  this 
regard.  From  8.30  o'clock  in  the  morning,  when  the 
exchanges  are  made  at  New  Orleans,  La.,  the  time  varies 
to  3.15  o'clock  in  the  afternoon,  when  the  exchanges  are 
made  at  Chattanooga,  Tenn.  All  hours  between  these 
are  occupied,  most  of  the  associations,  however,  clearing 
before  12  o'clock.  On  Saturdays,  in  a  majority  of  cases, 
clearings  are  made  at  an  earlier  hour  than  on  other  days 
in  order  to  enable  the  banks  to  close  their  business  and 
take  advantage  of  the  short  day. 

When  the  exchanges  take  place  at  10  o'clock,  or  earlier, 
it  is  customary  for  the  members  to  clear  the  items  received 
in  the  morning  mails,  or,  in  some  cases,  to  include  only 
the  larger  items  so  received,  and  to  send  those  received  in 
the  afternoon  and  the  smaller  amounts,  if  any,  left  over 
from  the  morning  through  the  exchanges  on  the  following 
day.  But  when  the  exchanges  take  place  as  late  as  3 
o'clock,  most  of  the  items  received  are  cleared  the  same 
day. 

The  rules  regulating  the  kinds  of  matter  to  be  cleared 
are  by  no  means  uniform,  A  number  of  organizations 
specify  in  their  articles  of  association  what  shall  be  con- 
sidered proper  clearing  matter.  Of  such  rules,  the  follow- 
ing, from  the  by-laws  of  a  prominent  western  clearing 
house,  is  one  of  the  most  common: 

Proper  matter  for  clearing  shall  consist  of  checks,  drafts,  manager's 
certificates,  certificates  of  deposit,  demand  or  matured,  and  any  other 
matter  specially  agreed  upon,  until  notice  is  given  to  the  contrary,  and 
any  bank  clearing  paper  not  proper  shall  be  lined. 


49 


National    Monetary     Commission 

In  addition  to  the  regular  checks,  express  money  orders 
are  cleared  at  Des  Moines,  Iowa,  through  a  bank  desig- 
nated by  the  express  company  as  its  depository. 

At  Fargo,  N.  Dak.,  the  unusual  custom  prevails  of 
sometimes  clearing,  in  addition  to  the  checks  on  city 
banks,  items  for  out-of-town  correspondents.  For  in- 
stance. Bank  A  sends  through  the  exchanges  to  the  other 
members  the  items  which  it  has  received  on  their  corre- 
spondents, and  the  other  members  in  turn  clear  the 
items  which  they  hold  on  A's  correspondents. 

All  checks,  notes,  acceptances,  and  other  item.s  received 
by  any  members  at  New  Haven,  Conn.,  against  an  asso- 
ciate member  are  proper  matter  for  clearing.  Any  mem- 
ber at  New  Orleans,  La.,  voluntarily  accepting  a  cashier's 
check  in  settlement  of  a  clearing-house  balance  is  not 
allowed  to  pass  the  check  through  the  clearings,  but 
must  collect  it  direct  from  the  member  who  issued  it. 

Notes  and  drafts  are  not  sent  through  the  exchanges 
at  Rockford,  111.,  nor  are  notes  and  bills  of  exchange  at 
St.  Paul.  As  a  rule,  only  regular  checks  are  included 
in  the  exchanges  at  Savannah,  Ga.,  and  never  drafts, 
notes,  and  bills  of  exchange.  Usually  notes,  acceptances, 
and  bills  of  exchange  are  certified  at  Scranton,  Pa.,  on 
the  morning  of  the  day  they  are  sent  through  the  clearing 
house.  At  Waco,  Tex.,  only  checks  and  manager's  cer- 
tificates, certified,  used  in  settlement  of  balances  at  the 
clearing  house,  are  passed  through  the  exchanges. 

In  the  exchanges  at  Washington,  D.  C,  all  checks  may 
be  cleared  and  all  sight  drafts,  certificates  of  deposit, 
matured    acceptances    payable    at    the    bank,    and    any 


50 


Clearing-House      Methods 

other  matter  certified  or  specially  agreed  upon,  until 
notice  is  given  to  the  contrary;  but  promissory  notes 
can  not  pass  through  the  exchanges  unless  certified  or 
authorized  by  the  member  bank  where  the  same  are  pay- 
able. The  rule  at  Youngstown,  Ohio,  is  that  only  items 
which  on  their  face  are  unconditional  demands  upon  a 
bank  are  payable  through  the  clearing  house. 

The  question  of  restricted  indorsements  has  been 
widely  discussed  in  recent  years,  and  as  a  measure  of  self- 
protection  most  of  the  large  clearing  houses  have  adopted 
resolutions  declaring  that  items  bearing  restricted  in- 
dorsements, such  as  "For  collection,"  "For  account  of," 
"For  credit  of,"  and  "For  deposit,"  shall  be  considered 
as  improper  matter  for  clearing  unless  specially  guaran- 
teed by  the  clearing  bank.     Items  indorsed  in  blank,  or 

"  Pay  to  the  order  of ,"  or  "  Pay  to or  order," 

are  not  regarded  as  bearing  restricted  indorsements. 

Each  bank,  before  sending  its  exchanges  through  the 
clearing  house,  is  required  to  indorse  them  with  its  num- 
ber and  the  words  "  Received  payment  through  the 

clearing  house,"  or  such  other  indorsement  as  the  clearing- 
house committee  or  the  association  may  determine  upon. 
Evidently  it  would  require  a  prodigious  amount  of  labor 
to  write  the  indorsements  upon  the  items,  and,  indeed,  it 
would  be  a  physical  impossibility  in  many  of  the  banks 
of  the  large  cities  to  do  so.  Hence  an  official  stamp  is 
used,  and  the  same  is  usually  accepted  as  a  guaranty  of 
all  previous  indorsements,  whether  written  or  stamped. 
It  is  not  construed  as  supplying  or  guaranteeing  to  supply 
a  missing  indorsement. 


51 


National    Monetary     Commission 

The  number  of  messengers  required  to  transport  the 
exchanges  to  and  from  the  clearing  house  varies  widely 
in  different  cities.  When  the  business  is  light,  as  in  some 
of  the  smaller  cities,  one  person  acts  as  both  messenger 
and  settling  clerk,  while  in  some  of  the  larger  cities  the 
exchanges  of  some  of  the  banks  are  so  heavy  that  four 
or  five  messengers  are  necessary  to  transport  them.  Each 
bank,  in  addition,  is  represented  by  one  settHng  clerk; 
who,  as  a  rule,  is  a  young  man,  quick  and  accurate  in 
arithmetical  calculations. 

Checks  are  taken  to  the  clearing  house  bound  to- 
gether with  rubber  bands  or  inclosed  in  large  envelopes, 
the  items  that  go  to  each  of  the  members  being  kept 
separate.  If  the  bulk  is  not  too  great,  they  are  often 
carried  in  the  hand,  but  it  is  customary  in  the  large 
cities  to  transport  them  in  leather  bags  or  cases. 

The  usual  rule  is  that  immediately  upon  his  arrival 
at  the  clearing  house  the  settling  clerk  delivers  to  the 
manager,  or  the  assistant  manager,  a  ticket  containing 
the  amount  of  the  items  brought  from  his  bank.  An 
exception  to  this  rule,  in  a  large  clearing  house,  is  found 
at  Baltimore,  where  the  clerks,  instead  of  delivering 
tickets,  call  off  the  amounts  to  the  manager,  while  he 
enters  them  upon  his  proof  sheet.  An  important  exception 
is  also  found  at  Cincinnati,  where  no  entries  of  any  kind 
are  made  by  the  manager  upon  his  settling  sheet  until 
the  proof  has  been  made.  This  done,  the  clerks  report 
their  credit  and  debit  balances,  and  these  alone  are 
entered. 


52 


Clearing-House      Methods 

Before  the  exchanges  begin  at  West  Superior,  Wis., 
there  is  a  roll  call  of  clerks.  The  only  advantage  in  this 
unusual  procedure  would  be  the  detection  of  the  absence 
of  a  member,  and  as  this  must  necessarily  appear  before 
the  exchanges  are  completed,  it  would  seem  to  be  an 
unnecessary  expenditure  of  time. 

At  South  Bend,  Ind.,  a  half  hour  before  clearing  time, 
the  manager  telephones  to  each  of  the  members,  of  which 
there  are  eight,  and  requests  from  them  the  total  of  their 
credits  for  the  day  and  the  amount  which  they  hold  on 
each  of  the  other  banks.  The  figures  so  secured  are 
entered  upon  special  sheets,  and  the  debit  and  credit 
balances  are  computed.  The  debits  are  then  arbitrarily 
distributed  to  credits,  and  the  debtor  banks  are  informed 
by  telephone  how  much  they  must  pay  and  to  whom 
they  must  pay  it.  When,  therefore,  the  messengers 
come  to  the  clearing  house,  they  have  only  to  exchange 
their  checks  and  pay  envelopes  and  return. 

A  fine  is  usually  imposed  upon  a  member  for  being 
late  at  the  clearings,  and  if  the  representative  fails  to 
appear  before  a  specified  time,  the  member  is  excluded 
from  the  exchanges  of  the  day,  and  must  make  its  clear- 
ings at  the  counters  of  the  other  banks.  The  fines  com- 
monly vary  from  $i  to  $5,  but  at  Chicago,  Milwaukee, 
and  Minneapolis  they  are  unusually  high.  For  the  first 
five  minutes  or  part  thereof,  the  fine  in  those  cities  is  $3 ; 
for  the  second  five  minutes  or  part  thereof,  $10;  and 
over  ten  minutes  late,  $25. 

Two  methods  of  delivering  items  in  the  exchange 
room  are  in  vogue.     In  the  one  case  they  are  delivered 


53 


National    Monetary     Commission 

by  all  the  clerks  simultaneously;  in  the  other  by  each 
clerk  as  soon  as  he  arrives  at  the  clearing  room;  but 
the  exchanges  must  all  be  made  before  a  specified  time. 

When  the  clerks  begin  the  exchanges  at  the  same 
time  they  all  start  upon  the  signal  from  the  manager, 
with  their  items  on  their  arms  or  in  bags  or  cases  strapped 
over  the  back,  and  proceed  in  the  same  direction,  passing 
along  the  desks  until  they  have  deposited  all  their  paper.. 
In  the  large  cities,  where  the  clerks  are  numerous,  order 
and  method  are  necessary  in  delivery  to  prevent  confusion 
and  to  save  time.  But  in  small  cities,  where  the  clerks 
usually  deliver  their  items  as  soon  as  they  arrive,  more 
liberty  is  allowed  in  personal  conduct;  also  by  this 
method  an  opportunity  is  afforded  to  the  less  proficient 
clerks  to  arrive  early  and  list  their  items  as  fast  as  they 
are  delivered  to  them  from  the  other  banks. 

Where  the  exchanges  are  made  around  a  table,  without 
any  network  or  division  of  any  kind  between  the  clerks, 
it  sometimes  happens  that  bundles  of  items,  thrown 
carelessly  on  the  table,  are  entered  by  the  wrong  clerk. 
To  prevent  errors  of  this  character,  at  Cincinnati,  four 
different  colors  are  used  for  slips  containing  lists  of  items 
and  attached  to  the  exterior  of  the  bundles,  all  the  slips  ' 
on  the  bundles  going  to  a  particular  bank  being  the  same 
color.  Thus,  clerks  representing  members  Nos.  i,  2,  3, 
and  4,  sitting  alongside  of  one  another  at  the  table,  have 
different  colored  slips,  and  the  same  colors  are  used, 
correspondingly,  by  members  Nos.  5,  6,  7,  and  8,  and  so 
on  around  the  table.  Also  the  debit  and  credit  slips 
brought  by  the  settling  clerks  are  of  different  colors. 


54 


Clearing-House      Methods 

The  speed  with  which  the  business  of  a  clearing  house 
is  transacted  seems  ahnost  incredible.  The  actual  time 
required  to  make  the  exchanges  varies  from  one  and  one- 
half  minutes  to  ten  minutes.  When  the  exchanges  are 
made  simultaneously,  the  time  varies,  as  a  rule,  in  propor- 
tion to  the  number  of  members.  In  view  of  the  shortness 
of  time  required  to  make  its  exchanges,  the  New  York 
Clearing  House  affords,  perhaps,  the' best  example  in  ex- 
istence of  the  success  of  modem  business  methods  as  com- 
pared with  the  old  way  of  doing  things.  The  clearances 
exceed  on  the  average  $300,000,000,  and  yet  this  enormous 
amount  of  paper  is  exchanged  between  the  banks  in  ten 
minutes,  and  often  in  less  time. 

When  the  clearings  have  been  made,  the  next  step  is  for 
each  settling  clerk  to  determine  the  amount  of  the  balance 
of  his  own  bank,  which  is  found  by  taking  the  difference 
between  the  amount  brought  to  the  clearing  house  and  the 
amount  taken  away.  There  is  practically  no  exception 
to  this  rule.  A  certain  amount  of  time  is  allowed  for  the 
proof,  and  for  each  error  remaining  undiscovered  at  the 
expiration  of  the  allotted  time  a  fine  is  usually  imposed. 
At  the  end  of  a  certain  time  thereafter  it  may  be  doubled, 
and  still  later  it  is  often  quadrupled. 

In  some  cases  the  settling  clerks  do  not  remain  until  the 
proof  is  made,  but  leave  for  their  respective  banks  as  soon 
as  they  make  out  their  tickets  for  the  amounts  brought, 
amounts  received,  and  balances.  If  the  manager,  or  his 
assistant  in  charge  of  the  proof  sheet,  finds,  after  he  has 
made  all  the  entries  and  additions,  that  his  work  does  not 
prove,  he  first  determines  whether  the  error  Avas  made  by 


55 


National    Monetary     Commission 

one  of  the  settling  clerks  or  by  himself.  If  by  one  of  the 
clerks,  it  is  usually  discovered  in  a  short  time  at  the  bank, 
whereupon  the  latter  reports  the  error  to  the  manager  at 
the  clearing  house  either  by  messenger  or  by  telephone. 
If  the  bank  fails  to  report  the  error  in  due  time,  the  man- 
ager takes  the  debit  and  credit  slips  and  finds  it. 

At  Cincinnati  no  fine  is  imposed  upon  a  clerk  or  his  bank 
for  an  error  in  a  slip  if  it  is  discovered  and  reported  promptly 
to  the  manager.  At  Louisville,  however,  a  fine  of  $i  is  im- 
posed, without  regard  to  time  limitations. 

All  that  has  been  said  thus  far  applies  to  those  clearing 
houses  that  clear  only  once  a  day.  But  there  are  in  the 
United  States  several  clearing  houses  that  make  practically 
two  clearings  a  day,  in  which  latter  class  are  Fall  River, 
Mass.,  Detroit,  Mich.,  and  Los  Angeles,  Cal. 

At  Fall  River,  Mass.,  an  amendment  was  made  to  the 
constitution  May  27,  1895,  as  follows: 

The  cashier  of  the  clearing  house  shall  be  the  manager  of  the  clearing 
house,  and  the  settling  clerks  shall  be  under  his  direction  while  at  the  clear- 
ing house.  An  exchange  of  checks  and  other  items  for  clearing  shall  be 
made  daily  at  10.30  o'clock  a.  m.  and  the  final  clearing  at  1.30  p.  m.  The 
debtor  members  shall  pay  to  the  manager  of  the  clearing  house  the  bal- 
ances against  them  by  2  o'clock  p.  m.,  and  on  or  before  2.15  o'clock  p.  m. 
the  creditor  members  shall  receive  the  respective  balances  due  them. 

The  first  clearing  at  Fall  River  is  made  at  10.30  o'clock 
in  order  that  the  bookkeepers  at  the  banks  may  have  most 
of  the  checks  for  entry  as  soon  as  possible.  This  is  simply 
an  exchange  of  checks,  notes,  and  drafts  payable  at  the 
bank,  and  they  are  thus  placed  at  the  bank  where  they  are 
payable  before  noon.  The  footings  of  this  clearing  are 
carried  on  the  various  slips  to  the  second  clearing  at  1.30 
o'clock,  when  balances  are  settled.  This  has  been  the 
custom  ever  since  the  inauguration  of  the  clearing  house. 

56 


Clearing-House      Methods 

At  Detroit  the  preliminary  clearing  takes  place  at  10.30 
o'clock  a.  m,  (on  Saturdays  at  9.30  o'clock  a.  m.).  At 
this  clearing  principally  checks  are  exchanged.  Later,  at 
2.30  o'clock  in  the  afternoon,  the  final  exchange  takes 
place,  which  includes  the  exchangeable  matter  received  up 
to  that  time.  The  Los  Angeles  clearing-house  banks  meet 
preliminarily  at  9. 1 5  o'clock  in  the  morning  and  make  their 
final  clearings  at  11.30  o'clock. 


20040— 10 5  57 


Chapter  VIII. 

CLEARING  COUNTRY  CHECKS. 

THE  GROWING  USE  OF  CHECKS — THE  DIFFICULTY  OF  COUN- 
TRY CHECKS — REMEDIES  PROPOSED STATE  AND  NA- 
TIONAL CLEARING  HOUSES — THE  KANSAS  CITY,  MO., 
PLAN — THE  ATLANTA,  GA.,  PLAN. 

The  use  of  bank  checks  and  drafts  in  business  transac- 
tions in  the  United  States  is  more  extensive  than  in  any 
other  country,  and  the  tendency  to  such  use  is  constantly 
on  the  increase.  So  popular  have  checks  and  drafts 
become  that  the  increase  has  more  than  kept  pace  with 
the  increase  in  business,  which  means  that  the  proportion 
of  money  in  use  to  the  volume  of  business  transactions 
has  been  on  the  decline. 

The  introduction  of  the  clearing-house  system  has 
greatly  facilitated  the  use  of  substitutes  for  money  by 
furnishing  a  much  safer,  more  convenient,  and  more 
expeditious  method  among  banks  than  previously  existed 
of  exchanging  items  drawn  on  each  other  and  settling  the 
balances  resulting  from  the  same.  With  but  two  excep- 
tions, to  be  explained  in  another  place,  the  exchanges 
passing  through  the  clearing  house  are  confined  to  items 
drawn  upon  members  or  upon  nonmembers  clearing 
through  members.  That  is  to  say,  checks  and  drafts 
received  by  a  bank  member  of  a  clearing  house  in  any 

58 


Clearing-House      Methods 

city  drawn  upon  another  member  of  the  same  clearing 
house,  from  whatever  source  the  checks  may  have  been 
received,  are  Hquidated  through  the  clearing  house;  but 
checks  and  drafts  received  by  a  member  of  a  clearing 
house  drawn  upon  some  bank  located  at  a  distance,  and 
not  a  member,  nor  clearing  through  a  member,  are  re- 
garded as  improper  matter  for  clearing. 

Now  it  is  evident  that  a  bank  receives  from  its  customers 
in  the  daily  course  of  business  checks  drawn  on  banks  in 
distant  towns  and  cities,  but  before  a  bank  can  realize 
any  return  from  such  checks  it  must  collect  them.  That 
is,  it  must  send  them  to  the  banks  upon  which  they  are 
drawn,  or  to  some  near-by  bank,  which  will  act  as  its 
agent,  for  payment.  There  could  be  no  objection  on  the 
part  of  the  banks  to  such  business  methods  if  the  cus- 
tomers depositing  such  items  did  not  expect  credit  therefor 
until  they  were  collected  and  if  they  were  willing  to  pay 
for  the  trouble  and  expense  of  collection. 

When  A,  who  lives  at  a  distance  from  a  financial  center, 
buys  a  bill  of  goods  from  B,  living  in  the  city,  and  sends 
a  check  drawn  on  his  local  bank  for  payment  of  the 
amount,  he  subjects  some  one  to  the  expense  of  collecting 
the  check,  and,  further,  some  one  is  out  the  use  of  the 
money  until  the  collection  has  been  made.  B  deposits 
the  check  in  his  bank  in  the  city  and  expects  immediate 
credit  therefor,  and  the  competition  among  the  financial 
institutions  in  the  larger  cities  is  so  keen  that  the  bank 
does  not  stand  upon  its  rights  and  insist  that  the  check 
shall  be  held  for  collection  and  credited  to  B's  account 
only  when  collected,  but  passes  it  to  his  credit  at  once, 


59 


National    Monetary     Commission 

through  fear  that  he  \\\\\  withdraw  his  account  and  de- 
posit with  some  other  bank  that  will  extend  that  accom- 
modation to  him.     This  practice  is  quite  general. 

During  the  past  few  years  great  strides  have  been 
made  by  the  clearing  houses  throughout  the  country  in 
the  matter  of  establishing  uniform  rates  for  the  collection 
of  country  checks,  and  at  the  present  time  there  are  few 
associations  in  the  United  States  that  have  not  some  sort 
of  a  schedule  for  this  purpose,  however  crude  it  may  be. 

The  question  has  been  asked,  "Why  is  it  that  bankers 
can  not  find  a  way  out  of  this  difficulty  through  a  state 
or  national  clearing  house?  Since  it  is  universally  recog- 
nized that  the  clearing  house  has  been  a  uniform  success 
in  all  of  the  leading  cities  of  the  country,  not  only  as  a 
medium  for  the  exchange  of  items,  but  also  as  a  means 
of  bringing  about  harmonious  action  among  the  banks  on 
nearly  all  questions  of  mutual  concern,  why  is  not  a 
national  clearing  house  feasible?" 

In  bankers'  conventions  and  in  current  bank  literature, 
particularly  in  the  last  decade,  many  remedies  have  been 
proposed  for  the  difficulty  that  must  be  met.  In  States 
where  the  bank  associations  are  divided  upon  the  group 
plan  many  have  favored  a  clearing  house  for  the  banks 
of  each  group.  Others  have  preferred  a  clearing  house 
for  the  banks  of  all  the  groups  of  the  State. 

Some  years  ago  it  was  proposed  that  a  clearing  house 
or  collection  agency  should  be  established  in  New  York 
City  for  all  the  banks  east  of  Chicago.  About  the  same 
time  a  scheme  was  set  forth  for  the  establishment  of  a 
clearing  house  at  Chicago  for  all  the  country  banks  within 


60 


Clearing- House      Methods 

a  radius  of  500  miles,  and  for  all  others  that  might  desire 
to  avail  themselves  of  its  facilities.  But  neither  of  these 
plans  was  carried  into  execution.  However,  several  at- 
tempts have  been  put  into  practical  operation  to  clear 
country  collections,  to  two  of  which  we  shall  give  atten- 
tion in  this  chapter,  viz,  that  in  operation  at  Kansas  City, 
Mo.,  for  handling  cash  items  drawn  on  banks  in  the  States 
of  Missouri,  Kansas,  and  Oklahoma,  and  the  plan  which 
has  only  recently  become  operative  at  Atlanta,  Ga.,  to 
collect  country  checks  on  the  State  of  Georgia. 

The  bankers  of  Kansas  City,  by  cooperating  through 
the  medium  of  the  clearing  house,  were  enabled,  some 
time  since,  to  carry  into  execution  a  plan  for  clearing 
country  collections  in  the  States  of  Missouri,  Kansas,  and 
Oklahoma.  This  department  (called  the  country  col- 
lection department),  as  at  present  existing,  is  maintained 
by  the  Clearing  House  Association  for  the  purpose  of  col- 
lecting such  items  payable  outside  of  Kansas  City  as  the 
clearing-house  committee  may  deem  it  advisable  to  re- 
ceive for  that  purpose.  The  manager  of  the  clearing 
house,  from  time  to  time,  informs  the  members  of  the 
association  of  points  upon  which  the  department  is  pre- 
pared to  collect,  and  also  of  the  cost  to  the  department 
for  making  such  collections,  and  all  the  members  of  the 
association  are  required  to  collect  through  the  country 
collection  department  all  items  upon  which  such  members 
would  incur  an  exchange  cost  of  10  cents  per  $100  or 
more,  except  items  on  points  at  which  are  located  banks 
carrying  deposit  accounts  with  such  members. 


61 


National    Monetary     Commission 

Upon  receipt  of  items  from  any  member,  the  manager 
of  the  department  issues  a  due  bill  to  such  member, 
payable  in  accordance  with  the  regulations  of  the  Clear- 
ing House  Association,  from  time  to  time,  usually  on  the 
fourth  day  after  issue. 

The  expense  of  making  these  collections  is  met  by 
each  member  paying  the  exact  amount  of  exchange 
incurred  in  the  handling  of  such  items  by  the  depart- 
ment for  such  member.  Other  expenses  are  apportioned 
among  the  members  in  ratio  to  the  aggregate  amount  of 
items  handled  for  the  respective  members  by  the  depart- 
ment. 

Along  these  same  lines,  although  differing  materially 
in  the  method  of  handling,  an  arrangement  has  been 
recently  consummated  in  Atlanta,  contemplating  the 
clearing  of  cash  items  drawn  on  banks  in  the  State  of 
Georgia,  and  so  far  as  it  has  been  tried  out  has  been  de- 
clared eminently  satisfactory. 

The  members  of  the  clearing  house  handle  this  class  of 
business  the  same  as  they  do  the  city  clearings,  viz,  a 
machine  list  of  checks  is  retained  by  the  banks  and  a 
proof  list  goes  with  the  checks  to  the  clearing  house. 
Checks  must  be  sent  to  the  clearing  house  in  the  morning 
as  early  as  possible,  but  in  no  case  later  than  10.30  o'clock, 
and  the  afternoon  checks  not  later  than  one  hour  after 
closing  time. 

The  clearing  house  issues  a  receipt  covering  all  items 
deposited  for  collection,  which  receipt  is  payable  at  a 
later  date,  the  exact  time  of  which  is  determined  by  the 
length  of  time  it  takes  to  collect  the  items.     In  order  to 


62 


Clea7'ing-House      Methods 

settle  for  these  receipts,  the  "  Foreign  department  of  the 
clearing  house"  is  a  member  of  the  clearing  house,  just  as 
each  of  the  banks  are  members,  and  the  receipts  held  by 
the  banks  are  listed  against  it  on  their  due  dates. 

The  clearing  house,  in  turn,  lists  to  the  different  banks 
such  items  as  it  receives  drawn  on  them,  and  prorates 
such  other  checks  as  it  receives  in  payment  of  collections. 
In  order  to  settle  each  day  in  full  for  all  outstanding  re- 
ceipts, the  clearing  house  charges  back  to  the  banks  their 
pro  rata  of  the  uncollected  items.  The  receipt  given 
therefor  is  payable  the  following  day  through  the  city 
clearing  house,  the  same  as  other  receipts  for  collections. 

Of  course  the  associations  in  each  of  these  instances 
have  been  obliged  to  increase  their  clerical  force,  but  as 
this  increased  expense  falls  upon  the  individual  members, 
and  they,  in  turn,  are  thereby  enabled  to  reduce  their 
working  staff  of  clerks,  as  well  as  effect  what  amounts  to  a 
considerable  saving  in  the  course  of  a  year  in  stationery, 
postage,  and  the  cost  of  collection,  they  can  well  afford 
to  pay  the  increased  assessment  to  the  association. 

The  plan  which  is  in  operation  in  Boston  is  a  further 
instance,  and  will  be  found  described  in  detail  in  another 
part  of  this  volume. 


63 


Chapter  IX. 

TYPICAL  JOURNEY  OF  A  COUNTRY  CHECK  REMITTED  FOR 
A  CITY  ACCOUNT. 

THE  SMAIvIy  AMOUNT  OF  WORK  REQUIRED  OF  PAYER  AND 
PAYEE — THE  LARGE  AMOUNT  OF  WORK  REQUIRED  OF 
THE  BANK  IN  WHICH  THE  CHECK  IS  DEPOSITED  AND  ITS 
CORRESPONDENT — WHAT  THE  RECEIVING  BANK  DOES — 
WHAT  ITS  REGULAR  CORRESPONDENT  IN  THE  CITY  NEAR- 
EST THE  COUNTRY  BANK  IS  REQUIRED  TO  DO — WHAT 
THE  COUNTRY  BANK  HAS  TO  DO — AN  ILLUSTRATIVE 
EXAMPLE. 

By  way  of  emphasizing  the  need  of  the  reform  that  has 
taken  place  in  the  matter  of  collecting  checks,  a  brief 
glance  of  the  methods  current  in  various  directions,  at  the 
present  time  will  be  advantageous.  A  merchant  in  Mas- 
sillon,  Ohio,  buys  a  bill  of  goods  in  New  York  amounting 
to  $250,  and  pays  for  the  same  with  a  check  on  his  local 
bank.  The  New  York  jobber  from  whom  the  goods  were 
bought  makes  the  proper  entries  on  his  books  for  the  check 
upon  its  receipt  by  him,  and  deposits  the  check  with  his 
(New  York)  bank.  The  receiving  teller  of  the  bank  in 
which  the  check  is  deposited,  after  checking  it  off  the 
deposit  slip,  enters  it,  by  amount  only,  in  his  record  of 
out-of-town  checks. 

Another  clerk  enters  the  check  on  a  sheet  headed  with 
the  depositor's  name,  stating  date  of  deposit,  place  of 


64 


Clearing-House      Methods 

payment,  and  amount,  for  the  purpose  of  making  the 
proper  charge  thereon.  The  slip  is  sent  to  the  jobber 
advising  him  of  the  charge.  The  charge  itself  is  made 
through  a  book  known  as  the  "  Debits  of  exchange,"  from 
which  the  bookkeeper  posts  the  charge. 

A  representative  of  the  corresponding  department  of 
the  bank  receipts  for  the  item  on  the  receiving  teller's 
record,  after  satisfying  himself  that  the  amount  has  been 
properly  listed  thereon.  Another  representative  sorts  the 
check  with  others  on  a  sorting  table,  according  to  the  place 
of  payment,  and  then  stamps  the  bank's  indorsement  on 
the  back  of  the  check. 

The  check  is  then  laid  on  the  collection  inclosure  sheet 
for  transmittal  to  a  Cleveland  bank,  since  all  Massillon 
items  are  collected  through  that  channel  by  this  particular 
New  York  bank.  The  check  is  next  listed  by  billing 
machine  in  duplicate  on  the  remittance  letter,  which  calls 
for  the  name  of  the  drawer,  place  of  payment,  and  amount, 
together  with  any  instructions  that  are  to  accompany  the 
item  regarding  the  handling  of  the  same.  The  duplicate 
of  this  letter,  which,  in  addition  to  the  information  called 
for  by  the  original,  provides  a  column  under  which  is 
entered  the  name  of  the  customer  for  account  of  whom 
the  check  is  received,  is  retained  by  the  bank  as  its  record 
of  checks  sent. 

After  all  these  details  have  been  completed,  the  name  of 
the  Cleveland  bank  is  filled  in  on  the  indorsement  stamp. 
A  record  is  then  made  on  the  letter  register,  showing  the 
name  of  the  Cleveland  bank,  date  when  the  collection 
letter  is  sent,  and  the  total  amount  of  the  items  contained 


65 


National    Monetary     Commission 

in  the  letter.  This  record  is  made  in  order  that  the  work 
of  the  bank  may  be  facilitated  in  keeping  track  of  its 
remittances,  so  that  should  an  acknowledgment  of  the 
same  not  be  promptly  received,  a  tracer  may  be  sent  out 
without  delay  to  secure  the  desired  information.  Mani- 
festly, it  is  essential  to  the  bank  to  know  that  all  letters 
containing  inclosures  are  promptly  and  properly  acknowl- 
edged. An  envelope  is  then  addressed,  the  letter  folded 
and  inclosed,  the  envelope  sealed  and  stamped,  and  finally 
examined  to  see  that  it  is  properly  addressed,  sealed,  and 
stamped.  The  letter  is  then  mailed  at  the  New  York 
post-office. 

The  Cleveland  bank,  on  receipt  of  this  letter,  enters  in 
detail  upon  its  books  those  items  contained  in  it  which  are 
payable  outside  of  Cleveland.  It  then  writes  a  letter  to 
its  Massillon  correspondent,  inclosing  the  $250  check  for 
collection,  makes  a  record  of  the  letter  and  inclosure, 
addresses  an  envelope,  in  which  are  placed  the  letter  and 
inclosure,  and  seals,  stamps,  and  mails  the  letter. 

The  Cleveland  bank  next  acknowledges  the  receipt  of 
the  item  by  drawing  and  remitting  a  check  on  its  New 
York  correspondent  for  the  amount,  less  the  usual  charge 
for  exchange.  It  writes  a  letter  inclosing  the  check,  takes 
a  record  of  the  same,  addresses  an  envelope,  puts  in  the 
inclosures,  then  seals,  stamps,  and  mails  the  letter. 

The  check  thus  received  by  the  New  York  bank  is 
checked  off  the  remittance  letter,  is  stamped  with  the  paid 
stamp  of  the  collecting  bank,  is  listed  upon  a  slip  with  the 
other  items  received  by  the  bank  the  same  day  upon  the 
other  New  York  bank  on  which  the  check  received  bv  it 


66 


Clearing-House      Methods 

is  drawn.  The  items  thus  made  up  are  collected  through 
the  clearing  house.  The  paying  bank  checks  off  the  items 
paid  through  the  clearing  house  from  the  slip  on  which 
they  are  listed,  examines  the  check  in  question  to  see  that 
it  is  properly  drawn,  dated,  and  signed,  and  that  the  signa- 
ture is  genuine,  charges  the  check  to  the  Cleveland  bank's 
account  on  its  books,  cancels  it,  enters  it  on  a  voucher  list, 
and  at  the  end  of  a  given  period  returns  the  check  with 
others  to  the  Cleveland  bank. 

The  Cleveland  bank,  upon  receiving  its  account  current, 
voucher  list,  and  canceled  vouchers,  immediately  checks 
off  the  vouchers  and  verifies  the  statement  of  account. 
It  then  compares  the  checks  with  the  stubs  in  the  check 
book,  and  examines  the  checks  themselves  to  ascertain 
if  the  indorsements  are  correct  or  if  any  alterations  have 
been  made  thereon,  and  at  last  files  the  checks  away  for 
future  reference,  including  the  one  that  has  been  used  in 
the  particular  case  under  consideration. 

The  letter  from  the  Cleveland  bank  to  Massillon  con- 
taining the  item  is  mailed  the  same  day  that  the  check 
is  received  from  New  York.  It  is  received  in  Massillon 
the  day  following.  After  carefully  examining  the  check 
to  see  that  it  is  properly  drawn  and  dated  and  that  the 
signature  is  genuine,  the  Massillon  bank  charges  the  check 
to  its  customer's  account  and  then  draws  its  check  on 
Cleveland,  less  the  usual  charge  for  exchange  in  payment 
of  the  same.  It  next  writes  a  letter,  inclosing  the  check, 
takes  a  record  of  the  same,  addresses  an  envelope,  puts 
in  the  inclosures,  and  then^  seals,  stamps,  and  mails  the 
letter. 


67 


National    Monetary     Commission 

The  customer  in  due  course  has  his  account  made  up, 
checks  off  the  canceled  checks  returned  by  the  bank 
from  the  voucher  hst,  compares  the  checks  with  the  stubs 
in  his  check  book,  examines  the  checks  to  ascertain  if  the 
indorsements  are  correct  or  if  any  aherations  have  been 
made,  and  finally  files  them  away  for  future  reference. 

The  Cleveland  bank,  upon  the  receipt  of  the  remittance 
from  its  Massillon  correspondent,  completes  its  records 
by  filling  in  the  date  of  the  receipt  of  the  remittance  and 
the  amount  of  exchange  charged  by  the  Massillon  bank. 

The  check  thus  received  is  listed  by  the  Cleveland  bank 
upon  a  slip  containing  all  the  items  received  by  it  the 
same  day  upon  the  other  Cleveland  bank  on  which  the 
check  is  drawn.  The  items  thus  made  up  are  then  col- 
lected through  the  clearing  house.  The  paying  bank 
checks  off  the  items  paid  through  the  clearing  house  from 
the  slip  on  which  they  are  listed,  examines  the  check  in 
question  to  see  that  it  is  properly  drawn,  dated,  and  signed, 
and  that  the  signature  is  genuine,  charges  the  check  to 
the  Massillon  bank's  account  on  its  books,  cancels  the 
check,  enters  it  on  the  voucher  list,  and  at  the  end  of  a 
given  period  returns  the  check  to  its  correspondent,  the 
Massillon  bank. 

The  Massillon  bank,  upon  receiving  its  account  current, 
voucher  list,  and  canceled  checks  from  the  Cleveland 
bank,  immediately  verifies  the  statement  of  account, 
compares  the  checks  with  the  stubs  in  the  check  book,  and 
examines  the  checks  themselves  to  ascertain  if  the  indorse- 
ments are  correct  or  if  any  alterations  have  been  made  in 
them,  and,  finally,  files  the  checks  away  for  future  reference. 


68 


Clearing-House     Methods 


69 


National    Monetary     Commission 

In  order  to  effect  the  collection  of  the  aforementioned 
check,  drawn  on  a  country  bank  and  remitted  to  New 
York  in  payment  of  an  account,  two  checks  had  to  be 
draAyn,  four  letters  had  to  be  written,  8  cents  in  post- 
age stamps  were  used,  and  seventy-five  or  more  handlings 
of  the  check  were  involved  by  a  score  or  so  of  clerks,  in 
five  different  banks,  located  in  three  different  cities. 

Lest  the  picture  should  seem  to  be  overdrawn — for,  in 
fact,  that  which  has  been  presented  is  only  an  average 
case — the  following  account  of  the  actual  travels  of  a 
check,  of  much  smaller  size  and  drawn  upon  a  bank  much 
nearer  New  York  than  Massillon,  is  submitted.  It  is  illus- 
trated by  a  reduced  facsimile  of  the  check  itself  and  the 
indorsements  that  it  received  in  transit. 

The  check,  which  was  for  $43.56,  was  drawn  by  Wood- 
ward Brothers,  of  Sag  Harbor,  N.  Y.,  and  paid  to  Berry, 
Lohman  &  Rasch,  of  Hoboken,  N.  J.,  who  deposited  it  in 
the  Second  National  Bank  of  Hoboken.  This  bank  sent 
it  to  Harvey  Fisk  &  Sons,  of  New  York,  who,  having  no 
regular  correspondent  in  the  neighborhood  of  the  bank 
on  which  it  was  drawn,  sent  it,  along  with  other  collec- 
tions, to  their  Boston  correspondent,  the  Globe  National 
Bank.  The  Globe  National  Bank  of  Boston,  for  reasons 
that  are  not  apparent,  sent  it,  presumably  with  other 
items,  to  its  correspondent  at  Tonawanda,  N.  Y.,  viz,  the 
First  National  Bank  of  that  city.  The  Tonawanda  bank, 
evidently  realizing  that  the  check  had  wandered  far  out 
of  its  course,  and  in  an  effort  to  get  it  nearer  home,  trans- 
mitted it   to   the   National  Exchange   Bank  of  Albany, 


70 


Clearing-House     Methods 


71 


National    Monetary     Commission 

which  institution,  pursuing  the  same  commendable  policy, 
remitted  it  to  its  correspondent  at  Port  Jefferson.  The 
First  National  Bank  of  Port  Jefferson,  which  thus  got 
possession  of  the  check,  again  diverted  its  course  by 
inclosing  it  to  the  Far  Rockaway  Bank.  The  Far  Rock- 
away  Bank  sent  it  back  to  New  York,  to  the  Chase  National 
Bank,  and  thus  this  much-traveled  check  made  its  second 
call  in  the  metropolis.  The  Chase  National  Bank,  it 
would  appear,  endeavored  to  correct  the  wanderer's 
course,  and  so  dispatched  it  to  Riverhead,  to  H.  M. 
Reeve.  Mr.  Reeve,  either  because  he  really  knew  where 
to  send  it  for  collection,  or  because  of  a  lucky  hit,  for- 
warded it  to  the  Queens  County  Bank  of  Brooklyn,  which 
finally  sent  it  home  to  the  Peconic  Bank  of  Sag  Harbor, 
on  which  it  was  drawn. 

The  reason  why  banks  forward  checks  in  this  apparently 
unreasonable  way,  often  getting  the  items  far  out  of  their 
regular  course,  is  easy  to  explain.  It  sometimes  appears 
cheaper  to  the  bank  which  has  the  check  in  hand  to  inclose 
it  with  other  items  to  some  regular  correspondent,  which, 
assumedly,  is  nearer  the  bank  on  which  the  check  is  drawn 
than  to  hunt  up  a  special  correspondent  for  it  alone. 
Once  started,  the  poor  check  gets  pushed  along  from  station 
to  station,  on  its  erratic  course,  until  such  time  as,  by 
accident  or  otherwise,  it  finds  its  final  lodgment. 

The  reader  may  estimate  for  himself  the  volume  of 
correspondence  which  this  one  check  caused,  from  the 
time  it  was  drawn  by  Woodward  Brothers  until  it  was 
paid  by  the  Peconic  Bank,  and  the  amount  of  postage 


72 


Clearing-House     Methods 


or  Port   ""^'JllQ'i«\l    a,, 

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Boston,  or  ordtr. 

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PAY  mTb^O®ER  OF 

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OF    HOBOKEM. 
PR^OR    ENl>ORSEMENtS^C  Uar];n^7^ED  ' 

ray  Any  Natiorjal  or  State  Bank. 

OR    ORDER. 

GLOBE  NAT  L  BA>JK.  BOSTON 


.:  A  i    II- 


Fac-simile  of  the  Back  of  the 
CriECK,  Showing  the  NuMERorg 
Indorsements  it  bore  on  Finally 
Reaching  the  Bank  on  which  it 
WAS  Drawn. 


20040 — 10- 


73 


National    Monetary     Co  m  m  is s  i o  n 

and  cost  of  clerical  work  expended  upon  it.  No  better 
argument  than  the  facts  here  presented  is  needed  to  sup- 
port the  proposition  of  charging  a  reasonable  sum  for 
collecting  out-of-town  checks.  No  better  illustration 
than  this  could  be  presented  to  the  business  man  for 
demonstrating  to  him  the  weight  of  the  burden  he  puts 
on  the  banking  machinery  of  the  community  by  remitting 
his  check  on  a  country  bank,  in  payment  of  an  account, 
instead  of  purchasing  exchange. 


74 


Chapter  X. 
CLEARING-HOUSE  LOAN  CERTIFICATES. 

WHAT  CI.EARING-HOUSE  LOAN  CERTIFICATES  ARE — ORIGIN — 
INTEREST  RATES — USES — FIRST  ISSUE  IN  1860 — THE 
ISSUES   OF    1 86 1,    1863,  AND    1 864 — ACTION   OF   VARIOUS 

CI^EARING    HOUSES    IN    1 8 73 NEW    ORLEANS    IN    1 8 79 

NEW  YORK  IN  1884 ACTION  OF  THE  NEW  YORK,  BOSTON, 

AND    PHILADELPHIA    CLEARING-HOUSE    ASSOCIATIONS    IN 

1890 GENERAL     RESORT     TO      LOAN    CERTIFICATES     IN 

1893 — EMERGENCY  CIRCULATION  IN  THE  SOUTH,  BOS- 
TON, AND  PHILADELPHIA  IN  1 895 — NEW  ORLEANS  IN 
1896 — CALCULATIONS  OF  INTEREST. 

Clearing-house  certificates  are  of  two  kinds — those 
issued  upon  the  deposit  of  gold  coin  (and  in  New  York 
City  and  Boston  on  gold  and  silver  certificates  and  legal 
tender  notes)  and  those  issued  upon  the  deposit  of  col- 
lateral securities.  The  former  are  employed  in  ordinary 
times  solely  as  a  method  of  economizing  time  and  labor 
and  reducing  risk  in  handling  large  sums  of  money.  The 
latter  are  employed  in  times  of  financial  disturbance  or 
panic,  and  although  both  are  intended  for  use  solely  in  the 
settlement  of  balances  at  the  clearing  house,  the  circum- 
stances that  call  them  forth,  the  results  effected  by  their 
use,  and  the  part  they  play  in  banking  economy  have  little 
or  nothing  in  common.  The  certificates  issued  upon  the 
deposit  of  gold,  etc.,  are  termed  "Clearing-house  certifi- 
cates," and  those  issued  upon  the  deposit  of  collateral 


75 


National    Monetary     Com  m  is  s  i  o 


n 


security  are  very  properly  termed  "Clearing-house  loan 
certificates,"  with  which  latter  only  are  we  here  concerned. 

Clearing-house  loan  certificates  may  be  defined  as 
temporary  loans  made  by  the  banks  associated  together 
as  a  clearing-house  association,  to  the  members  thereof, 
for  the  purpose  of  settling  clearing-house  balances.  Such 
certificates  are  negotiable,  as  a  rule,  only  among  the  mem- 
bers of  the  association,  and  are  not  in  any  sense  to  be 
regarded  as  currency.  They  are  not  even  seen  by  the 
business  community,  and  do  not  pass  from  bank  to  bank 
except  in  pavment  of  clearing-house  balances. 

To  obtain  an  intelligent  understanding  of  the  real  char- 
acter and  purpose  of  such  certificates  it  will  be  well  to 
treat  somewhat  of  the  circumstances  under  which  they 
are  issued.  In  the  course  of  the  present  century  the 
United  States  has  undergone  periodical  derangements  of 
business  affairs,  when  confidence  was  displaced  by  mis- 
trust, when  the  payment  of  debts  became  difficult,  when 
property  values  declined,  and  business  houses  failed; 
when  industry  and  trade  were  paralyzed,  and  general  stag- 
nation ensued  in  all  lines  of  enterprise.  In  such  times 
depositors  in  iDanks,  stricken  with  fear  and  sometimes 
pressed  by  need,  draw  out  their  deposits,  in  many  cases  to 
such  an  extent  as  to  render  it  difficult  or  even  impossible 
for  the  banks  to  contract  their  loans  sufficiently  to  meet 
the  demands  thus  made  upon  them.  Under  our  present 
currency  system  no  adequate,  method  is  provided  for 
expanding  the  money  volume  as  occasion  demands, 
whereby  the  banks  can  continue  their  usual  loans  and 
discounts,  and  thus  prevent  a  panic  with  all  its  evil  con- 


76 


C  I  e  a  r  i  n  g  -  H  0  u  s  e      Methods 

sequences.  Hence  it  is  left  in  a  large  measure  to  the 
financiers  of  each  community  to  work  out  their  own 
remedy,  supplemented  by  such  mutual  assistance  as  a 
courteous  regard  for  each  other  may  dictate  or  as  busi- 
ness relations  may  demand. 

Quick  to  see  the  defects  in  our  currency  system,  and 
the  desirability  of  in  some  way  supplying  it,  the  bankers 
of  New  York,  nearly  fifty  years  ago,  devised  the  scheme 
of  issuing  clearing-house  loan  certificates  as  a  method  of 
relief  from  temporary  stringencies.  Subsequently,  nearly 
all  the  clearing  houses  in  the  great  centers  adopted  the 
same  device,  and  by  their  heroic  resort  to  the  measure 
they  have  at  different  times  relieved  the  business  commu- 
nity of  untold  disaster,  for  which  invaluable  service  they 
have  justly  received  the  grateful  recognition  of  the  entire 
country. 

The  great  value  of  clearing-house  loan  certificates  lies 
in  the  fact  that  they  take  the  place  of  money  in  settle- 
ments at  the  clearing  house,  and  hence  save  the  use  of  so 
much  actual  cash,  leaving  the  amount  to  be  used  by  the 
banks  in  making  loans  and  discounts,  and  in  meeting 
other  obligations.  The  volume  of  currency,  to  all  intents 
and  purposes,  is  expanded  by  this  means  to  the  full  amount 
of  the  certificates  issued. 

The  loan  certificates  are  taken  out  by  the  clearing-house 
members  through  loan  committees,  specially  appointed, 
and  are  used,  as  a  rule,  only  in  the  payment  of  balances 
among  the  associated  banks.  Thus,  when  the  stringency 
in  the  money  market  seems  sufficient  to  demand  it,  the 
clearing-house  association  meets  and  appoints  a  commit- 


77 


National    Monetary     Commission 

tee  called  the  "loan  committee,"  consisting  usually  of 
five  bank  officers,  to  act  in  concurrence  with  the  president 
of  the  clearing-house  association,  who  serves  ex  officio  as 
a  member.  It  is  the  duty  of  such  committee  to  meet  each 
morning  at  the  clearing  house  and  examine  the  collateral 
offered  as  security  by  the  banks  and  issue  loan  certifi- 
cates thereon,  in  such  denominations  and  proportions  to 
collaterals  deposited  as  may  be  agreed  upon.  In  the 
history  of  the  past  the  denominations  have  varied  from 
25  cents  to  $100,000  in  the  different  associations  and  in 
proportions  varying  from  $50  to  $100  of  certificates  to 
$100  of  collateral  deposited. 

These  loan  certificates  bear  interest  at  rates  varying  from 
5  to  10  per  cent  per  annum,  payable  by  the  banks  to  which 
they  are  issued  to  the  banks  receiving  such  certificates  in 
settlement  of  daily  balances.  Hence  the  interest  charged 
against  certain  banks  must  exactly  equal  and  offset  that 
credited  to  certain  other  banks.  The  aim  is  to  fix  the 
rates  sufficiently  high  to  insure  the  retirement  of  the  cer- 
tificates as  soon  as  the  emergency  which  called  them  forth 
has  passed  by.  As  a  rule  they  are  retired  by  the  banks, 
which  take  them  out  as  soon  as  they  have  obtained  suffi- 
cient cash  to  meet  their  daily  obligations.  Notice  is  given 
by  the  debtor  banks  to  the  committee,  calling  for  such 
certificates  as  they  wish  to  retire,  and  the  committee  gives 
notice  to  the  banks  holding  the  same,  stating  that  the 
interest  will  cease  after  a  specified  date.  In  due  course 
the  holders  send  the  certificates  to  the  clearing  house  for 
redemption.  Upon  the  retirement  of  the  certificates  the 
collateral  deposited  as  security  is  surrendered  by  the  com- 


78 


Clearing-House      Methods 

mittee  in  the  same  proportion  to  certificates  turned  in  as 
was  required  for  deposit  at  the  time  of  issue. 

It  is  by  no  means  the  general  practice  for  all  the  mem- 
bers to  take  out  loan  certificates  when  issues  are  arranged 
by  the  association.  Some  banks  are  in  such  condition 
as  to  be  able  to  weather  the  storm  without  them,  while 
others  are  weak  and  in  great  need  of  relief.  Some  banks 
regard  their  use  of  clearing-house  loan  certificates  as  a 
reflection  upon  their  standing,  and  hence  refuse  to  apply 
for  them  unless  driven  to  it  by  sheer  necessity.  Others 
regard  it  as  in  no  way  prejudicial  to  their  interests,  but 
rather  as  a  patriotic  movement  in  which  all  the  banks 
should  engage,  both  for  the  purpose  of  assisting  their 
fellow-members  and  for  the  welfare  of  the  community  as 
a  whole. 

The  members  of  the  New  York  Clearing  House  As- 
sociation especially  have  distinguished  themselves  in 
this  regard.  Up  to  1907,  when  only  about  60  per  cent 
of  the  members  found  it  necessary  to  take  out  certifi- 
cates, it  has  been  the  almost  universal  rule  for  all  the 
members  to  take  loan  certificates  whenever  the  occa- 
sion demanded  such  action  on  the  part  of  any  of  the 
banks,  and  this,  too,  without  regard  to  how  strong  they 
may  have  been  or  how  easily  they  might  have  gotten  on 
without  using  them.  In  one  instance,  when  a  member 
bank  refused  to  share  the  burden  of  the  associated  banks, 
it  was  suspended  from  the  privileges  of  the  clearing  house 
for  more  than  three  months. 

The  total  amount  of  its  balances  is  not  always  paid 
in  clearing-house  loan  certificates  by   a   bank   to   which 


National    Monetary     Commission 

such  certificates  have  been  issued.  Thus,  for  exam- 
ple, the  debit  balance  of  a  given  bank  may  be  $500,000, 
which  in  ordinary  times  would  be  paid  in  money  or  gold 
certificates.  In  a  time  of  panic  a  part  of  this  sum — say, 
$300,000 — is  paid  in  clearing-house  loan  certificates  and 
the  remaining  $200,000  in  currency.  Another,  with  the 
same  balance,  might  pay  the  whole  in  clearing-house  cer- 
tificates, while  still  another  would  pay  the  full  amount 
without  the  use  of  any  certificates  whatsoever. 

The  first  issue  of  clearing-house  certificates  occurred 
in  i860.  In  the  autumn  of  that  year  there  was  a  rapid 
shrinkage  in  bank  deposits  and  a  corresponding  contrac- 
tion in  loans  and  discounts.  The  situation  grew  more 
and  more  serious  as  the  end  of  the  year  approached. 
The  presidential  election  was  a  disturbing  factor  of  more 
than  ordinary  significance.  Immediately  succeeding  the 
election  of  Abraham  Lincoln  to  the  Presidency  the  situa- 
tion began  to  assume  a  critical  aspect.  Distrust  and  un- 
certainty were  universally  felt.  The  banks  hesitated  to 
advance  loans,  and  obtained  from  their  customers  as 
rapidly  as  possible  the  payment  of  obligations.  Call 
loans  commanded  7  per  cent,  and  paper  of  some  of  the 
best  houses  went  begging  at  24  per  cent.  In  this  crisis 
a  meeting  of  the  New  York  Clearing  House  Association 
was  called,  and  the  following  resolution  was  passed: 

In  order  to  enable  the  banks  of  the  city  of  New  York  to  expand  their 
loans  and  discounts,  and  also  for  the  purpose  of  facilitating  the  settlement 
of  the  exchanges  between  the  banks,  it  is  proposed  that  any  bank  in  the 
clearing-house  association  may,  at  its  option,  deposit  with  a  committee 
of  five  persons — to  be  appointed  for  that  purpose — an  amount  of  its  bills 
receivable,  United  States  stocks,  Treasury  notes,  or  stocks  of  the  State  of 
New  York,  to  be  approved  by  said  committee,  who  shall  be  authorized  to 
issue  thereon  to  said  depositing  bank  certificates  of  deposit  bearing  interest 

80 


Clearing-House      Methods 

at  7  per  cent  per  annum  in  denominations  of  $5,000  and  $10,000  each,  as 
may  be  desired,  to  an  amount  equal  to  75  per  cent  of  such  deposit.  These 
certificates  may  be  used  in  the  settlement  of  balances  at  the  clearing  house 
for  a  period  of  thirty  days  from  the  date  thereof,  and  they  shall  be  received 
by  creditor  banks  during  that  period,  daily,  in  the  same  proportion  as  they 
bear  to  the  aggregate  amount  of  the  debtor  balances  paid  at  the  clearing 
house.  The  interest  which  may  accrue  on  these  certificates  shall,  at  the 
expiration  of  thirty  days,  be  apportioned  among  the  banks  which  shall 
have  held  them  during  the  time. 

The  securities  deposited  with  said  committee,  as  above  named,  shall  be 
held  by  them  in  trust  as  a  special  deposit,  pledged  for  the  redemption  of 
the  certificates  issued  thereupon. 

The  committee  shall  be  authorized  to  exchange  any  portion  of  said  securi- 
ties for  an  equal  amount  of  others  to  be  approved  by  them  at  the  request 
of  the  depositing  bank,  and  shall  have  power  to  demand  additional  security, 
either  by  an  exchange  or  an  increased  amount,  at  their  discretion. 

The  amount  of  certificates  which  this  committee  may  issue,  as  above 
stated,  shall  not  exceed  $5,000,000.^^ 

This  agreement  shall  be  binding  upon  the  clearing-house  association 
when  assented  to  by  three-fourths  of  its  members. 

Resolved,  That  in  order  to  accomplish  the  purpose  set  forth  in  this  agree- 
ment the  specie  belonging  to  the  associated  banks  shall  be  considered  and 
treated  as  a  common  fund  for  mutual  aid  and  protection,  and  the  com- 
mittee shall  have  the  power  to  equalize  the  same  by  assessment  or  other- 
wise. 

For  this  purpose  statements  shall  be  made  to  the  committee  of  the  con- 
dition of  each  bank  on  the  morning  of  every  day  before  the  commence- 
ment of  business,  which  shall  be  sent  with  the  exchanges  to  the  manager 
of  the  clearing  house,  specifying  the  following  items,  viz:  (i)  Loans  and 
discounts,  (2)  deposits,  (3)  loan  certificates,  (4)  specie. 

In  accordance  with  the  authority  thus  given  the 
first  issue  of  certificates  was  made  November  23,  i860, 
and  the  beneficial  effect  was  immediately  felt.  The 
banks  rapidly  extended  their  loans,  deposits  increased, 
and  commercial  paper,  which  formerly  could  not  be  sold 
for  20  per  cent,  was  now  freely  marketed  at  7  per  cent 
and  8  per  cent.  On  December  22  the  issue  had  reached 
its  maximum  limit,  viz,  $6,860,000;  the  aggregate  issue, 
$7,375,000.      The  last  certificate  was  canceled  March  9, 

a  On  December  3,  i860,  it  was  voted  to  increase  this  limit  to  $10,000,000. 


National    Monetary     Commission 

1 86 1,  and  the  total  period,  from  the  date  of  the  first  issue 
to  the  date  of  the  last  issue,  was  one  hundred  and  six 
days. 

But  the  relief  thus  afforded  was  not  destined  to  be 
permanent.  The  country  was  soon  plunged  into  the 
throes  of  civil  war,  and,  consequently,  distrust  and 
uncertainty  as  to  the  future  prevailed  universally.  Busi- 
ness interests  were  suspended,  trade  was  hampered, 
and  industry  was  paralyzed.  As  a  result  of  the  pressure 
the  association  passed  a  resolution  in  the  following 
September,  authorizing  another  issue  of  loan  certificates, 
and  on  September  19,  1861,  the  first  issue  was  made. 
The  maximum  of  $21,960,000  was  reached  on  February 
7,  1862,  and,  as  will  be  perceived,  was  more  than  three 
times  as  much  as  the  maximum  amount  outstanding 
at  any  one  time  in  the  preceding  year.  The  total  issue 
was  $22,585,000,  exceeding  the  previous  total  issue  by 
more  than  $15,000,000.  The  rate  of  interest  was  6  per 
cent  as  compared  with  7  per  cent  in  the  former  year, 
and  the  collateral  used  as  security  consisted  of  temporary 
receipts  of  the  United  States  for  the  purchase  of  gov- 
ernment bonds,  as  compared  with  United  States  stock, 
Treasury  notes,  and  stocks  of  the  State  of  New  York, 
employed  for  the  same  purpose  in  the  preceding  issue. 
The  last  certificates  were  called  April  28,  1862,  more  than 
seven  months  from  the  date  of  their  first  issue. 

In  1863  the  association  issued  certificates  for  the 
third  time.  The  first  bore  the  date  of  November  6,  and 
the  largest  amount  outstanding  at  any  one  time  was 
$9,608,000,    from    November    27    to    December    i.     The 


82 


Clearing-House      Methods 

total  issue  was  $11,471,000,  being  a  little  more  than  one- 
half  of  the  issue  of  two  years  before.  Interest  was 
charged  at  6  per  cent,  as  in  1S61,  and  United  States 
or  New  York  State  stocks,  bonds,  etc.,  or  temporary 
receipts,  as  in  1861,  were  used  as  security.  The  last 
certificates  were  redeemed  February  i,  1864,  four  and 
one-half  months  from  the  date  of  the  first  issue. 

Owing  to  the  prolongation  of  the  war,  with  the  con- 
sequent unrest  in  business  circles,  the  issue  of  certifi- 
cates for  the  fourth  time  began  March  7,  1864,  and 
reached  its  maximum,  $16,418,000,  on  April  20  of  the 
same  year,  being  an  excess  of  nearly  $7,000,000  over 
the  maximum  amount  outstanding  at  any  one  time 
in  the  previous  year.  The  aggregate  issue  was  $17,728,000, 
being  less  than  $1,000,000  in  excess  of  the  maximum 
amount  outstanding  at  one  time.  The  rate  of  interest 
was  6  per  cent,  as  in  1861  and  1863,  and  the  certificates 
were  secured  by  the  same  kind  of  collateral  as  those  in 
the  former  issue.  The  final  redemption  occurred  June 
13,  1864,  three  and  one -half  months  after  the  first 
certificates  were  issued. 

No  more  loan  certificates  were  issued  until  the  year 
1873,  when,  for  the  first  time,  the  clearing-house  asso- 
ciations of  other  cities,  seeing  their  great  practical 
utility,  began  to  avail  themselves  of  their  use.  In  the 
year  mentioned  the  association  at  New  York  followed 
the  precedent  established  in  i860,  and  the  same  course 
was  taken  by  the  clearing-house  associations  at  Bos- 
ton, Philadelphia,  Baltimore,  Cincinnati,  St.  Louis, 
and   New  Orleans.     The   panic   which  called  forth  such 


83 


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Clearing-House     Methods 

united  action  was  one  of  unusual  severity.  It  reached 
its  climax  in  September,  and  so  severe  were  its  ravages 
that  the  New  York  Stock  Exchange  closed  its  doors 
on  the  2oth  of  the  same  month,  for  an  indefinite  period, 
but  reopened  them  ten  days  thereafter. 

The  usual  resolutions  were  passed  by  the  clearing- 
house association,  authorizing  the  issue  of  certificates, 
and  on  September  22  the  first  issue  was  made.  The 
amount  was  fixed  at  the  outset  at  $10,000,000,  which, 
with  the  announcement  that  the  Government  would 
purchase  the  same  amount  of  bonds,  caused  an  imme- 
diate subsidence  of  the  panic,  and  in  less  than  three  days 
its  most  acute  stages  were  over.  The  last  issue  was 
made  on  Novemeber  20,  a  little  less  than  two  months 
from  the  date  of  the  first  issue,  and  the  last  certificates 
were  redeemed  January  14  of  the  following  year,  the 
period  covered  from  the  date  of  the  first  issue  to  the  date 
of  final  cancellation  having  been  less  than  four  months. 
During  the  two  months  referred  to  certificates  to  the 
amount  of  $26,565,000  were  issued.  This  was  far  in 
excess  of  any  previous  issue,  the  nearest  approach  to 
it  having  been  in  1861,  when,  as  shown  before,  more  than 
$22,000,000  were  taken  out.  The  largest  amount  out- 
standing at  any  one  time  was  $22,410,000,  which  occurred 
only  eleven  days  from  the  date  of  issue  of  the  first 
certificates.  Interest  was  calculated  at  7  per  cent,  as  in 
i860,  the  rate  during  the  intervening  time  having  been 
6  per  cent.  Bills  receivable,  stocks,  bonds,  and  other 
securities  were  accepted  by  the  conunittee  as  collaterals 
for  the  redemption  of  these  certificates. 


85 


National    Monetary     Commission 

Attempts  on  the  part  of  the  business  community  were 
made  in  vain  to  discover  what  banks  had  taken  out 
certificates,  but  such  information  was  very  wisely  with- 
held. For  more  than  two  months,  covering  the  worst 
period  of  the  panic,  no  weekly  statements  of  their  con- 
dition were  made  to  the  clearing  house  by  the  banks, 
the  object  being  to  prevent  a  general  knowledge  of  the 
weak  condition  of  some  of  the  members,  which  condi- 
tion, if  disclosed,  would  invite  runs  upon  them. 

On  September  27,  1873,  a  meeting  of  the  Boston 
association  was  called,  and  it  was  voted  to  suspend 
currency  payments  and  appoint  a  loan  committee, 
with  power  to  issue  loan  certificates  to  the  amount  of 
$10,000,000,  upon  substantially  the  same  basis  as  at 
New  York.  The  issues  were  duly  made,  and  on  October 
20  the  amount  outstanding  reached  its  maximum  of 
approximately  $4,800,000. 

In  like  manner  the  Philadelphia  association  now, 
for  the  first  time,  entered  upon  the  plan  so  success- 
fully followed  in  New  York  since  i860,  by  appointing 
a  loan  committee,  with  authority  to  issue  clearing-house 
loan  certificates.  Such  certificates  were  authorized  by 
resolution  adopted  September  24,  1873,  and  amended 
October  18,  1873,  to  read  as  follows: 

For  the  purpose  of  enabling  the  banks,  members  of  the  Philadelphia 
Clearing  House  Association,  to  afford  proper  assistance  to  the  mercantile 
and  manufacturing  community,  and  also  to  facilitate  the  inter-bank 
settlements  resulting  from  their  daily  exchanges,  we,  the  undersigned, 
do  bind  ourselves  by  the  following  agreement  on  the  part  of  our  respec- 
tive banks,  namely: 

First.  That  the  clearing-house  committee  be,  and  that  they  are  hereby, 
authorized  to  issue  to  any  bank,  member  of  the  association,  loan  certificates 
bearing  6  per  cent  interest  on  the  deposits  of  bills  receivable  and  other 

86 


Clearing-House     Methods 


o 


f=4 


87 


National    Monetary     Commission 

securities  to  such  an  amount  and  to  such  percentage  thereof  as  may  in 
their  judgment  be  advisable.  These  certificates  may  be  used  in  settle- 
ment of  balances  at  the  clearing  house,  and  they  shall  be  received  by 
creditor  banks  in  the  same  proportion  as  they  bear  to  the  aggregate  amount 
of  the  debtor  balances  paid  at  the  clearing  house.  The  interest  that 
may  accrue  upon  these  certificates  shall  be  apportioned  monthly  among 
the  banks  which  shall  have  held  them  during  that  time. 

Second.  The  securities  deposited  with  the  said  committee  shall  be 
held  by  them  in  trust  as  a  special  deposit,  pledged  for  the  redemption 
of  the  certificates  issued  thereupon,  the  same  being  accepted  by  the  com- 
mittee as  collateral  security,  with  the  express  condition  that  neither 
the  clearing-house  association,  the  clearing-house  committee,  nor  any 
member  thereof  shall  be  responsible  for  any  loss  on  said  collaterals  arising 
from  failure  to  make  demand  and  protest,  or  from  any  other  neglect  or 
omission  other  than  the  refu.sal  to  take  some  reasonable  step  which  the 
said  depositing  bank  may  have  previously  required  in  writing. 

Third.  On  the  surrender  of  such  certificates,  or  any  of  them,  by  the 
depositing  bank,  the  committee  will  indorse  the  amount  as  a  payment 
on  the  obligation  of  said  bank  held  by  them,  and  will  surrender  a  pro- 
portionate amount  of  securities,  except  in  cases  of  default  of  the  bank 
in  any  of  its  transactions  through  the  clearing  house,  in  which  case  the 
securities  will  be  applied  by  the  committee,  first  to  the  payment  of  out- 
standing certificates  with  interest;  next  to  the  liquidation  of  any  in- 
debtedness of  such  bank  to  the  other  banks,  members  of  the  clearing- 
house association. 

Fourth.  The  committee  shall  be  authorized  to  exchange  any  portion 
of  said  securities  for  others,  to  be  approved  by  them,  and  shall  have  power 
to  demand  additional  securities  at  their  own  discretion. 

Fifth.  That  the  clearing-house  committee  be  authorized  to  carry  into 
full  effect  this  agreement,  with  power  to  establish  such  rules  and  regu- 
lations for  the  practical  working  thereof  as  they  may  deem  necessary; 
and  any  loss  caused  by  the  nonpayment  of  loan  certificates  shall  be  assessed 
by  the  committee  upon  all  the  banks  in  the  ratio  of  capital. 

Sixth.  The  expenses  incurred  in  carrying  out  this  agreement  shall  be 
assessed  upon  the  banks  in  equal  proportion  to  their  respective  capitals. 

Seventh.  That  the  clearing-house  committee  be  and  they  are  hereby 
authorized  to  terminate  this  agreement  upon  giving  thirty  days'  notice 
thereof  at  any  stated  meeting  of  the  clearing-house  association. 

The  issue  of  certificates  made  in  conformity  with  the 
foregoing  resolution  reached  the  maximum  amount  out- 
standing at  one  time,  namely,  $6,285,000,  on  December 
I,  1873. 


88 


Clearing-House      Methods 

At  Baltimore,  on  September  24,  the  clearing-house 
association  began  the  issue  of  certificates,  which  amounted 
in  the  aggregate  to  $1,326,000.  The  last  of  these  was 
retired  January  2,  1874,  one  hundred  days  after  the  date 
of  the  first  issue. 

The  first  certificates  at  St.  Louis  were  issued  on  Sep- 
tember 25,  and  the  last  of  the  certificates  were  canceled 
forty-six  days  thereafter,  the  aggregate  amount  having 
been  $1,472,500. 

At  New  Orleans  the  maximum  amount  outstanding 
($1,067,000)  was  attained  October  10. 

On  September  25  the  following  resolution  was  adopted 
by  the  association  at  Cincinnati: 

Resolved,  That  for  the  protection  of  our  commercial  interests  and  for  the 
purpose  of  preventing  a  drain  of  currency  from  the  banks  and  bankers  of 
this  city,  the  banks  and  bankers  of  Cincinnati  do  hereby  agree  to  adopt 
substantially  the  plan  adopted  in  New  York  City,  namely,  they  will  not 
pay  out  currency  on  checks,  except  for  small  sums,  to  be  optional  with  the 
banks  and  bankers  on  whom  they  are  drawn;  but  they  will  certify  checks 
drawn  on  balances  in  their  hands,  payable  through  the  clearing  house  only. 
When  such  checks  are  drawn  in  payment  of  notes  or  drafts,  the  bank  hold- 
ing the  same  shall  not  be  required  to  deliver  said  paper  until  after  the 
check  in  payment  has  been  paid  to  the  clearing  house. 

Resolved,  That  the  above  resolution  be  printed,  and  slips  furnished  each 
bank  and  banker. 

Resolved,  That  the  clearing-house  association  will  issue  not  to  exceed 
$2,500,000  in  loan  certificates,  to  be  used  in  settling  balances  between  the 
members  thereof,  and  that  the  same  will  be  furnished  to  members  in  the 
proportion  of  securities  put  up  by  each  as  hereinafter  provided.  Said  cer- 
tificates shall  not  be  negotiable,  and  shall  be  used  only  for  the  purpose  of 
settlement  between  the  banks  and  bankers  in  the  clearing  house. 

Resolved,  That  members  may  deposit  as  a  basis  of  credit  in  the  associa- 
tion the  following-described  securities,  namely,  United  States  bonds,  rail- 
road and  other  bonds,  stocks  and  bills  receivable.  The  United  States 
bonds  shall  be  received  at  their  par  or  face  value,  and  the  other  securities 
shall  be  valued  by  a  committee  of  five,  who  shall  be  appointed  for  that  pur- 
pose, and  the  same  shall  be  received  at  75  per  cent  of  the  value  so  fixed. 
Each  member  shall  receive  a  receipt  for  the  securities  deposited.  The  said 
committee  shall  have  charge  of  the  securities  of  whatsoever  kind  deposited 

20040 — 10 7  89 


National    M  on  et  ar  y     Commission 

by  tlie  said  banks  and  bankers,  and  shall  place  the  same  with  the  safe 
deposit  company  for  safe-keeping,  and  the  said  committee  shall  sit  daily 
at  the  clearing  house  at  the  hour  for  clearing  and  shall  personally  supervise 
the  issue  of  the  loan  certificates  in  settlement  of  balances.  The  said  certifi- 
cates shall  bear  interest  at  the  rate  of  8  per  cent  per  annum,  which 
interest  shall  be  paid  by  the  banks  and  bankers  using  the  same  and  for  the 
time  so  used. 

Resolved,  That  these  proceedings  take  effect  from  and  after  9  o'clock 
to-day,  and  are  not  to  affect  currency  transactions  or  obligations  between 
members  prior  to  this  day. 

In  the  period  from  September  25,  when  the  issue  of  cer- 
tificates was  authorized,  to  October  9,  when  a  resolution 
was  unanimously  adopted  in  favor  of  discontinuing  their 
issue,  a  period  of  only  fourteen  days,  certificates  to  the 
amount  of  $515,400  were  issued,  the  last  of  which  were 
canceled  just  six  weeks  from  the  date  of  first  issue. 

The  next  report  of  clearing-house  loan  certificates  was 
in  1879,  when  the  New  Orleans  association  alone  issued  a 
small  amount  ($54,000)  to  satisfy  conditions  of  a  purely 
local  character. 

In  1884  the  New  York  association  stood  alone  in  the 
issue  of  loan  certificates.  The  amount  taken  out  at  this 
time  was  large,  and  was  begun  early  in  the  year  to  prevent 
a  widespread  and  disastrous  panic.  The  first  were  taken 
out  May  15,  and  reached  $21,881,000,  their  maximum 
amoimt  outstanding,  on  May  24,  only  nine  days  from  the 
date  of  first  issue.  The  last  certificates  were  issued  June 
6,  and  the  last  were  retired  September  23,  more  than  four 
months  from  the  date  on  which  the  issue  was  begun. 
The  total  amount  was  $24,915,000,  being  in  excess  of  any 
previous  issue  except  that  of  1873.  I'he  rate  of  interest 
was  fixed  at  6  per  cent,  the  same  as  in  1861,  1863,  and  1864, 
and,  as  security  for  the  redemption  of  such  certificates,  bills 


90 


Clearing-House      Methods 

receivable,  stocks,  bonds,  and  other  securities  were  em- 
ployed. 

For  the  next  six  years  the  country  was  free  from  any 
unusual  financial  disturbances,  and  hence  no  occasion 
arose  for  extraordinary  measures.  Finally,  however,  in 
1890,  came  another  period  of  pressure.  Up  to  midsummer 
of  that  year  the  country  had  experienced  unusual  pros- 
perity, but  to  the  observing  eye  it  was  apparent  that  deep- 
seated  forces  were  at  work  w^hich  would  ultimately  cause 
a  widespread  disturbance  in  business  and  financial  circles, 
if  not  bring  about  a  disastrous  panic.  This  was  evident 
from  consideration  of  the  unsatisfactory  conditions  pre- 
vailing in  agriculture  and  from  the  unwholesome  tendency 
to  overtrading  and  expansion  on  every  hand.  The  exten- 
sion of  railroads  had  been  prosecuted  tliroughout  the  year 
with  more  than  ordinary  vigor,  which  required  the  exten- 
sion of  large  sums  of  money  upon  security.  Early  in  the 
year  the  deposits  in  the  banks  of  New  York  City  began  to 
fall  off,  and  by  May  17  the  shrinkage  had  amounted  to 
more  than  $44,831,000,  of  which  over  $13,500,000  con- 
sisted of  balances  drawn  out  by  banks  in  the  interior  and 
in  other  reserve  cities.  Boston  and  Philadelphia  were  also 
subjected  to  heavy  drains.  After  careful  consideration,  it 
was  decided  in  each  of  these  three  cities  to  resort  to  the 
issue  of  clearing-house  loan  certificates,  to  be  used  in  the 
settlement  of  clearing-house  balances.  New  York  was 
the  first  to  take  action,  and  on  November  1 1 ,  at  a  meeting 
of  the  association,  the  following  resolution  was  unani- 
mously adopted: 

Resolved,  That  a  committee  of  five  be  appointed  by  the  chair,  of  which  the 
chairman  shall  be  one,  to  receive  from  banks,  members  of  the  association, 

91 


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Clearing-House      Methods 

approved  by  said  committee,  who  shall  be  authorized  to  issue  therefor,  to 
such  depositing  banks,  loan  certificates  bearing  interest  at  7.3  per  cent  per 
annum,  and  such  loan  certificates  shall  not  be  in  excess  of  75  per  cent  of 
the  market  value  of  the  securities  or  bills  receivable  so  deposited,  and  such 
certificates  shall  be  received  and  paid  in  settlement  of  balances  at  the 
clearing  house. 

It  is  worthy  of  remark  that  the  basis  upon  which  the 
payment  of  any  loss  arising  from  the  issue  of  loan  certifi- 
cates differed  from  that  at  New  York,  in  that  in  the  one 
case  it  was  required  to  be  paid  by  the  banks  in  proportion 
to  capital  and  surplus,  and  in  the  other  in  proportion  to  the 
average  daily  amount  of  exchanges  which  each  bank  had 
sent  to  the  clearing  house  during  the  preceding  year.  The 
resolution  bearing  upon  this  point,  adopted  at  Boston, 
was  as  follows: 

Resolved,  That  any  loss  arising  from  the  issue  of  loan  certificates  shall  be 
borne  by  the  banks  comprising  the  clearing-house  association  pro  rata 
according  to  the  average  daily  amount  wliicli  each  bank  shall  have  sent  to 
the  clearing  house  during  the  preceding  year. 

It  was  also  voted  that  this  resolution  should  be  ratified 
by  the  boards  of  directors  of  the  respective  banks,  mem- 
bers of  the  association,  and  a  certified  copy  of  such  consent 
delivered  to  the  chairman  of  the  loan  committee. 

Upon  deposit  of  securities  with  the  clearing-house  com- 
mittee and  the  receipt  of  certificates  therefor,  each  bank 
was  required  to  execute  and  deliver  an  obligation  in  the 
following  form: 

The  Bank  has  this  day  received  oi  loan  committee  of  the 

Boston  Clearing  House  Association,  loan  certificates  issued  by  said  com- 
mittee in  pursuance  of  a  vote  of  said  association,  passed  November  17,  1890, 

to  the  amount  of  thousand  dollars,  and  has  deposited  with  said 

committee  the  securities,  a  statement  whereof  is  hereto  annexed,  and  said 

bank  has  received  said  loan  certificates  on  the  terms  set  forth  in 

said  vote,  and  agrees  to  pay  the  amount  of  said  certificates,  with  interest 
thereon,  as  provided  in  said  vote. 


93 


National    Monetary     Commission 

The  first  certificates  were  taken  out  November  19,  two 
days  after  the  adoption  of  the  resolution  authorizing  such 
action,  and  the  last  were  issued  December  6,  when  the 
amount  reached  its  maximum  of  $5,065,000.  The  last  of 
the  issue  w^ere  finally  canceled  January  6,  1891,  less  than 
two  months  after  the  first  issue. 

On  November  18,  1890,  similar  proceedings  were  had 
by  the  clearing-house  association  of  Philadelphia,  at  which 
time  the  following  resolution  was  passed : 

Resolved,  That  in  accordance  with  resolution  of  September  24,  1873,  as 
amended  October  18,  1873,  the  clearing-house  committee  will  issue  loan 
certificates  to  banks  applying,  and  receive  them  in  payment  of  balances. 

The  resolution  of  September  24,  1873,  referred  to,  has 
already  been  quoted.  On  November  18,1 890,  the  clearing- 
house committee  passed  the  resolution  which  had  been 
adopted  on  that  day  by  the  clearing-house  association, 
affirming  their  purpose  to  issue  clearing-house  loan  certifi- 
cates as  in  accordance  with  the  resolution  of  1^73. 

Acting  under  the  authority  thus  granted,  the  clearing- 
house committee  began  the  issue  of  clearing-house  cer- 
tificates, and  the  banks  desiring  to  take  them  out  were 
required  to  adopt  a  resolution  empowering  the  hypothe- 
cation of  acceptable  securities,  under  which  resolution  the 
first  issue  of  certificates  was  made  on  November  19,  1890, 
and  ceased  May  22,  1891.  The  total  issue  was  $9,655,000, 
and  the  maximum  issue  ($8,870,000)  was  reached  Jan- 
uary 9,  1 89 1.  The  certificates  were  all  retired,  excepting 
$170,000  issued  to  the  Keystone  and  Spring  Garden 
National  Banks,  institutions  which  were  carried  down  in 
the  panic. 


94 


Clearing-House      Methods 

In  1 89 1  Louisville,  Ky.,  issued  loan  certificates  to  a 
small  amount,  although  none  were  required  in  the  previous 
year,  when  New  York,  Boston,  and  Philadelphia  were 
employing  them  extensively.  This  clearing  house  was 
the  only  one  to  use  certificates  that  year,  and  what  further 
distinguishes  this  association  is  that  the  issue  referred  to 
is  the  only  one  it  had  ever  made. 

Following  the  panic  of  1890  came  a  period  of  prosperity, 
which,  to  all  outward  seeming,  bore  the  marks  of  perma- 
nence, but  it  was  only  temporary.  The  clouds  which 
began  to  appear  prior  to  the  advent  of  the  Cleveland 
Administration,  grew  denser  as  time  advanced,  until  in 
April,  1893,  it  was  apparent,  even  to  the  superficial 
observer,  that  a  storm  of  unusual  severity  was  approach- 
ing. Reports  of  failures,  as  given  by  commercial  agencies, 
showed  a  rapid  increase  as  the  year  advanced,  and  the 
shrinkage  in  national-bank  deposits  from  May  4  to  July  1 2 
exceeded  $190,000,000,  while  the  decline  in  the  deposits 
in  state  and  savings  banks  was  no  less  surprising.  By 
June,  banks  all  over  the  country  were  being  forced  to  the 
wall.  In  July  73  national  banks  failed  as  compared  with 
25  in  the  preceding  month,  while  the  state  and  private 
banking  houses  showed  a  mortality  equally  alarming. 
By  August  I  a  panic  of  great  severity  was  raging  through- 
out the  country,  and  particularly  in  the  great  metropolitan 
centers. 

The  only  avenue  of  relief  provided  by  the  laws  was 
the  issue  of  additional  national-bank  notes,  but  to 
those  familiar  with  the  history  of  the  past  it  was  appar- 
ent that  the  national  banks  were  bound  hand  and  foot 


95 


National    Monetary     Commission 

by  indiscreet  legislation,  and  were  therefore  unequal 
to  the  task  of  extending  the  relief  so  much  needed, 
and  which,  under  more  favorable  laws,  might  easily 
have  been  supplied.  The  situation  was  aggravated 
in  no  small  degree  in  the  reser\^e  and  central  reserve 
cities  by  the  urgent  demands  made  for  their  reserves 
by  the  banks  in  the  interior.  So  excessive  was  the  drain 
upon  the  resources  of  the  banks  in  some  cities  that  in 
many  cases  they  positively  refused  to  respond  to  the 
calls  of  the  banks  for  their  reserves  unless  such  call 
was  accompanied  by  the  assurance  that  such  assist- 
ance was  an  urgent  necessity.  Such  action  was  prompted 
by  the  fact  that  in  many  previous  instances  packages 
had  been  returned  unbroken  after  the  subsidence  of  a. 
panic,  showing  that  the  contained  amounts  had  been 
withdrawn  through  fear  of  loss  rather  than  through 
the  necessity  of  replenishing  reserves. 

In  the  absence  of  any  legal  expedient  by  which  the 
country  could  escape  from  the  unprecedented  condition 
into  which  it  had  fallen,  it  was  left  to  the  financiers 
in  the  great  cities  and  to  the  great  corporations  accus- 
tomed to  wrestle  with  panics  in  times  past  to  work 
out  the  people's  salvation.  The  remedy  that  was  ap- 
plied affords  one  of  the  finest  examples  the  country 
has  ever  seen  of  the  ability  of  the  people  when  left  to 
themselves  to  devise  impromptu  measures  for  their 
own  relief.  The  most  potent  factors  in  staying  the  force 
of  the  panic  were  the  clearing-house  loan  certificates 
issued  by  the  clearing-house  associations  throughout 
the  country. 


96 


Clearing-House      Methods 


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National    Monetary     Commission 

At  New  York  authority  was  duly  given,  by  resolu- 
tion of  the  association,  for  the  appointment  of  a  loan 
committee  for  the  issue  of  such  certificates  upon  the 
hypothecation  of  acceptable  collaterals.  Immediately 
upon  their  appointment,  the  committee  proceeded  to 
issue  to  applying  banks  loan  certificates  upon  the  de- 
posit of  proper  securities. 

The  issue  was  commenced  June  21,  1893,  and  ceased 
September  6  of  the  same  year,  the  total  issue  having 
been  $41 ,490,000.  The  largest  amount  outstanding  at  one 
time  ($38,280,000)  was  attained  August  20,  which  amount 
remained  unaltered  until  September  6.  The  last  of  the 
certificates  was  retired  November  i ,  more  than  four  months 
from  the  date  of  first  issue.  These  certificates  bore  interest 
at  6  per  cent,  and  were  secured  by  the  same  kind  of  col- 
lateral as  in  1873,  1884,  and  1890.  The  aggregate  amount 
was  far  in  excess  of  any  previous  issue.  The  next  largest 
amount  was  in  1873,  the  aggregate,  it  will  be  remembered, 
having  been  less  than  $27,000,000. 

The  Boston  Clearing  House  Association  by  resolu- 
tion authorized  a  similar  course,  and  on  June  27  the 
committee  began  the  issue  of  certificates  in  denomina- 
tions of  $10,000  and  $5,000,  respectively,  bearing  in- 
terest at  7.3  per  cent,  the  same  rates  as  in  1873  and  1890. 

From  August  23  to  September  i  the  amount  was 
at  its  maximum — $11,445,000.  The  aggregate  issue 
was  $11,645,000,  which,  it  will  be  observed,  is  some- 
what in  excess  of  one-quarter  of  the  amount  taken  out 
at  New  York.  From  June  27,  when  the  first  issue  was 
made,  to  the  end  of  the  period    balances  were  paid  at 


98 


Clearing-House     Methods 


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National  .Monetary     Commission 

the  clearing  house  with  certificates  to  the  extent  of 
$43,130,000,  which  was  38.4  per  cent  of  the  total  bal- 
ances at  the  clearing  house  during  the  time  the  cer- 
tificates were  used.  By  far  the  largest  amount  of  cer- 
tificates was  employed  in  September,  and  so  far  as 
single  days  are  concerned  the  maximum  was  reached 
September  7  and  9,  the  amount  on  each  of  these  days 
having  been  $1,065,000.  By  October  21  the  certifi- 
cates had  all  been  retired  and  canceled. 

In  pursuance  of  a  resolution  of  the  association  at 
Philadelphia,  a  loan  committee  was  appointed,  which 
issued  certificates  in  denominations  of  $5,000  only,  bearing 
interest  at  6  per  cent,  as  in  1873  and  1890. 

The  total  amount  of  the  issue  was  $11,470,000,  being 
less  by  only  a  small  amount  than  the  total  issue  at  Boston. 
The  largest  amount  outstanding  at  any  one  time  was 
$10,965,000  on  August  15,  all  of  which  was  redeemed 
in  due  time  without  loss  to  any  of  the  members. 

At  Baltimore  certificates  in  denominations  of  $1,000, 
$3,000,  and  $6,000  were  issued,  bearing  interest  at  6 
per  cent.  From  August  24  to  September  6  the  certificates 
outstanding  were  at  their  maximum  of  $1,475,000,  all 
of  which  were  ultimately  retired  and  canceled. 

The  Clearing  House  Association  at  New  Orleans  followed 
the  action  at  New  York  as  closely  as  possible.  On  June 
22  a  resolution  w^as  unanimously  adopted  as  follows: 

Resolved,  That  a  committee  of  six  banks  be  appointed  by  the  chair  to 
receive  from  banks,  members  of  the  association,  bills  receivable  and  other 
securities  to  be  approved  by  said  committee,  who  shall  be  authorized  to 
issue  therefor  to  such  depositing  banks  loan  certificates  bearing  interest 
at  7  per  cent  per  annum,  and  such  loan  certificates  shall  not  be  in 
excess  of  75  per  cent  of  the  market  value  of  the  securities  or  bills  receivable 


Clearing-House      Methods 

so  deposited,  the  committee  reserving  the  right  to  call  for  additional 
security  as  in  their  judgment  the  same  is  required;  and  such  certificates 
shall  be  received  and  paid  in  settlement  of  balances  resulting  from  the 
exchanges  at  the  clearing  house,  and  all  the  rules  and  regulations  heretofore 
adopted  in  the  issue  of  such  certificates  shall  be  in  force  in  the  present 
issue.  It  is  expressly  agreed  and  understood  that  no  bank  which  shall 
have  received  certificates  shall  make  any  new  loans  or  discounts,  but  shall 
confine  its  business  to  the  collection  of  outstanding  loans,  until  all  clearing- 
house certificates  shall  have  been  retired. 

Certificates  were  accordingly  issued  in  denominations 
of  $500  to  $10,000.  On  the  day  of  the  passage  of  the  above 
resolution  it  was  also 

Resolved,  That  any  members  of  this  association  now  out  of  line  in  their 
reserve  shall  immediately  take  steps  to  put  themselves  in  line,  and  that 
any  members  desiring  to  avail  themselves  of  the  use  of  clearing-house 
certificates  shall  not  be  allowed  to  increase  their  line  of  discounts. 

Also  on  June  22  the  committee  addressed  to  the  cashiers 
of  the  several  associated  banks  the  following  communica- 
tion: 

The  undersigned  beg  leave  to  advise  you  that  they  have  accepted  the 
appointment  extended  to  them  by  the  meeting  of  the  associated  banks, 
held  at  the  clearing  house  this  day,  to  act  as  a  loan  committee,  and  that 
as  such  committee  they  will  meet  daily  at  the  clearing  house  at  1 1  o'clock 
a.  m.  on  and  after  Thursday,  the  2  2d  instant,  prepared  to  issue  loan  certifi- 
cates in  accordance  with  the  action  adopted  by  the  meeting  referred  to. 
Banks  desiring  to  receive  loan  certificates  on  pledge  of  bills  receivable 
or  other  securities  to  be  deposited  with  the  committee  are  requested  to 
make  application  for  such  certificates  at  or  before  11  o'clock  a.  m.,in  the 
form  herewith  inclosed,  to  the  chairman  of  the  committee  at  the  clearing 
house,  with  a  certified  copy  of  a  resolution  of  the  board  of  directors,  in 
the  form  inclosed,  authorizing  the  deposit  and  pledge  of  securities  for  loan 
certificates.  You  are  requested  to  report  daily  to  the  manager  of  the 
clearing  house  each  morning  at  10  o'clock  the  amount  of  certificates  held 
by  your  liank. 

One  striking  feature  of  the  above  communication 
which  does  not  appear  in  the  resolutions  and  communi- 
cations in  other  similar  associations  is  that  banks  are 
referred  to  as  acting  in  a  joint  capacity  instead  of  as 


National    M o  n  e  t  ar y     C o  m  m  i s s  i o 


n 


Clearing-House      Methods 

individuals.  Soon  after  the  above  action  was  taken,  a 
resolution  was  passed  by  the  boards  of  directors  of  the 
several  associated  banks  as  follows: 

Resolved,  That  the  president  or  casliier  be  and  is  hereby  authorized  and 
empowered  to  deposit,  pledge,  or  hypothecate  with  the  loan  committee  of 
the  associated  banks  of  New  Orleans,  United  States  stocks,  bills  receivable, 
or  other  securities  belonging  to  this  bank  as  collateral  security  for  any 
loan  or  loans  made  to  the  said  bank  by  that  committee. 

Applications  to  the  loan  committee  for  certificates 
were  made  by  members  in  form  as  follows: 

The applies  for  the  issue  to  them  of  loan  certificates  to  the  amount 

of  $ to  be  secured  by  the  deposit  of  collateral  security  as  per  security 

herewith  sent. 

Before  taking  out  loan  certificates  the  several  members 
ratified  the  action  of  the  association  in  authorizing  their 
issue,  in  the  following  manner: 

Resolved,  That  as  a  member  of  the  New  Orleans  Clearing  House  Asso- 
ciation, the  action  of  said  association  in  the  matter  of  issuing  clearing-house 
certificates  is  herebj^  ratified  and  confirmed,  with  all  of  its  provisions. 

To  intrench  themselves  against  loss  in  the  event  of  fail- 
ure on  the  part  of  any  member  of  the  association  taking 
out  loan  certificates  to  redeem  the  same,  with  the  stipu- 
lated interest,  each  mem.ber  was  required  to  execute  and 
deliver  an  obligation,  of  which  the  following  is  a  copy: 

This  certifies  that  the  • National  Bank  of  the  city  of  New  Orleans 

is  indebted  to  the  New  Orleans  Clearing  House  Association  in  the  sum  of 

dollars,  paid  by  said  association  to  said  bank  on  the  faith  hereof, 

and  in  consideration  thereof  said  bank  hereby  agrees  to  pay  said  sum,  with 
interest  from  the  date  thereof  at  the  rate  of  7  per  cent  per  annum,  to  the 
said  association  or  to  its  assigns,  and  said  association  is  hereby  authorized, 
through  its  loan  committee  or  otherwise,  to  sell  at  public  auction  or  private 
sale,  on  three  days'  notice  to  said  bank,  the  securities  deposited  by  said 
bank  with  such  association,  in  accordance  with  the  resolution  of  such 
association,  in  pursuance  of  which  this  certificate  is  issued. 


103 


National     Monetary     Commission 


104 


Clearing-House      Methods 

As  a  further  measure  of  protection  to  the  members  in 
the  event  of  any  emergency  arising  not  otherwise  pro- 
vided for,  it  was  further 

Resolved,  That  any  loss  arising  from  the  issue  of  loan  certificates  shall  be 
borne  by  the  banks  comprising  the  clearing  house  association,  pro  rata  of 
capital  and  surplus;  and  this  resolution  shall  be  ratified  by  the  boards  of 
the  respective  banks  members  of  the  association,  and  a  certified  copy  of 
such  consent  delivered  to  the  chairman  of  the  loan  committee. 

In  addition  to  this,  a  resolution  was  passed  limiting 
the  amount  of  payment  by  any  member  of  the  clearing- 
house association  to  a  single  person  in  any  one  day  to  $ioo. 
The  largest  amount  of  certificates  outstanding  at  any  one 
time  was  $998,000,  covering  one  week  from  September  7 
to  September  14,  all  of  which  were  finally  retired  without 
loss  to  any  member. 

The  Cincinnati  clearing  house  likewise  issued  loan  cer- 
tificates in  1893,  and  the  form  employed  at  that  time  is 
given  among  the  illustrations. 

All  of  the  associated  banks  at  Buffalo  took  out  certifi- 
cates in  1893  in  denominations  of  $5,000  and  $1,000,  bear- 
ing interest  at  6  to  8  per  cent,  but  they  did  not  all  use 
them.  The  form  employed  was  substantially  the  same  as 
that  used  at  previous  dates  in  New  York.  The  sum  total 
of  the  issue  was  $985,000,  with  w^hich  balances  were  set- 
tled to  the  amount  of  $2,780,000.  In  July,  40  per  cent 
of  the  balances  were  paid  with  these  certificates,  and  50 
per  cent  in  August.  From  July  9  the  amount  outstand- 
ing reached  its  maximum,  $925,000. 

Only  10  out  of  19  members  of  the  clearing-house  asso- 
ciation at  Pittsburg  took  out  loan  certificates  in  1893. 
The  total  amount  issued  was  $987,000,  being  only  $2,000 

20040 — 10 8  105 


National    Monetary     Commission 


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106 


Clearing-House      Methods 

more  than  the  issue  at  Buffalo.  The  first  were  taken  out 
August  II,  and  the  last  were  retired  November  lo,  the 
full  amount  of  the  issue  having  been  outstanding  on  Sep- 
tember 15.     The  certificates  bore  interest  at  6  per  cent. 

A  loan  committee  was  appointed  by  the  chairman  of 
the  clearing-house  association  of  Detroit,  upon  vote  of 
the  association  authorizing  such  action,  and  certificates 
bearing  interest  at  7  per  cent  were  issued  to  members 
applying  for  the  same  in  denominations  of  $1,000.  A 
sample  of  the  certificate  employed  is  presented  in  reduced 
facsimile  among  the  illustrations.  The  amount  attained 
a  maximum  of  $360,000  on  September  11.  In  section  8 
of  the  constitution,  provision  in  case  of  loss  resulting  from 
default  in  payment  by  a  member  of  the  obligation  exe- 
cuted and  delivered  upon  receipt  of  loan  certificates  and 
from  failure  to  realize  a  sufficient  amount  from  the  securi- 
ties held  as  collateral  to  the  obligation,  is  made  as  follows: 

Fifty  per  cent  of  the  loss  shall  be  prorated  among  the  members  on  the 
amount  of  the  capital  stock,  and  the  residue  of  the  balance  of  loss  shall  be 
assessed  pro  rata  the  aggregate  amount  which  the  several  members  have 
sent  to  the  clearing  house  during  the  time  any  of  such  certificates  of  deposit 
may  have  been  outstanding. 

The  Atlanta  Clearing  House  Association  passed  a 
resolution,  August  11,  1893,  referring  the  matter  of 
issuing  clearing-house  loan  certificates  to  a  special  com- 
mittee, and  on  August  15  a  communication  from  the 
chamber  of  commerce  was  entertained,  requesting  the 
issuance  of  clearing-house  loan  certificates,  whereupon  a 
committee  of  three  was  appointed  to  act  as  trustees  for 
the  receipt  of  collateral  securities,  and  for  the  issuance 
of  such  certificates  to  the  extent  of  6673  per  cent  of  the 
collateral  deposited. 

107 


National     Monetary     Commission 


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Clearing-House      Methods 

On  August  17  a  new  manager  was  appointed,  who, 
under  direction  of  the  trustees,  took  active  charge  of 
issuing  the  certificates.  The  largest  amount  out  at  any 
one  time  was  $127,000.  All  were  redeemed  by  Novem- 
ber ,  I ,  save  about  $20,  which  at  last  accounts  were  still 
outstanding.  The  denominations  were  $5,  $10,  $100, 
and  $500.  A  sample  of  the  largest  denomination  is  pre- 
sented on  another  page. 

Two  things  are  characteristic  of  the  Atlanta  certifi 
cates  which  are  not  to  be  found  in  any  of  those  hereto- 
fore discussed.  In  the  first  place  they  were  issued  to 
the  extent  of  only  66^  per  cent  of  the  collateral  deposited 
as  compared  with  a  minimum  of  75  per  cent  in  the  other 
associations;  and  in  the  second  place  it  is  to  be  noted  on 
the  certificates  that  they  "will  be  received  on  deposit 
or  in  payment  of  debts  due  any  bank  in  said  clearing 
house" — an  implication  that  they  were  used  for  gen- 
eral circulation,  which,  indeed,  is  true. 

In  June,  1893,  the  clearing-house  association  at  Bir- 
mingham, Ala.,  appointed  a  committee  to  inquire  into 
the  best  methods  for  reheving  the  situation,  which  was 
aggravated  by  a  run  on  one  of  its  members  about  a  month 
previous  to  that  time,  and  the  committee  recommended 
the  use  of  clearing-house  loan  certificates.  In  addition 
to  this,  the  association  passed  resolutions  similar  to  the 
one  passed  at  New  Orleans,  limiting  the  amount  of  actual 
cash  each  member  should  pay  to  a  customer  on  any  one 
day  to  $100,  which  was  afterwards  reduced  to  $50,  and 
providing  a  penalty  for  violation.  The  denominations 
of  loan  certificates  first  used  were  $1,000,  $500,  $100,  $50, 
$10,  and  $5,  respectively. 

log 


National    Monetary     Commission 

Like  the  certificates  in  Atlanta,  they  were  intended  for 
general  circulation  among  the  customers  of  the  banks, 
but  unlike  any  certificates  previously  mentioned,  they 
were  issued  to  the  extent  of  only  50  per  cent  of  the  col- 
lateral required.  Customers  at  first  received  them'  with 
much  reluctance,  but  they  soon  found  that  the  merchants 
would  take  them  for  debts  and  for  merchandise,  that  the 
banks  would  take  them  on  deposit  and  accept  them  in 
payment  of  notes.  To  obtain  cash,  persons  commenced 
to  buy  small  bills  of  goods  with  them,  expecting  to  receive 
money  in  change.  This  checkmated  the  merchants,  and 
they  called  on  the  association  for  smaller  denominations. 
Hence  certificates  of  $2,  $1,  50  cents,  and  25  cents  were 
subsequently  issued.  No  other  association  in  the  United 
States  had  previously  compared  with  the  one  at  Birming- 
ham in  the  comprehensiveness  of  its  currency  system  and 
in  the  extent  to  which  it  was  projected  on  this  occasion. 
A  facsimile  of  one  of  the  smaller  certificates  is  presented 
among  the  illustrations. 

On  August  22,  1893,  the  following  resolution  was 
adopted  by  the  clearing-house  association  at  Richmond, 
Va.: 

Resolved,  That  the  committee  have  certificates  prepared  in  denomina- 
tions of  $1,  $5,  and  $10  in  handsome  form,  ready  for  use  at  such  time  as  this 
association  may  hereafter  determine,  said  certificates  to  be  payable  on 
demand  after  ninety  days  through  the  clearing  house,  to  bear  3  per  cent 
interest  per  annum,  and  to  be  secured  by  deposits  of  collateral  as  by 
former  resolution,  interest  to  cease  after  ninety  days. 

The  certificates  were  duly  prepared  in  compliance  with 
the  authority  thus  given,  but  were  never  used. 


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National    Monetary     Commission 

The  clearing-house  association  at  Chattanooga,  Tenn., 
resorted  to  loan  certificates  in  1893  (the  first  time  in  the 
history  of  that  organization  that  it  had  done  so) . 

Besides  the  loan  certificates  issued  in  1893,  there  was 
a  considerable  amount  of  emergency  circulation  taken 
out  by  the  banks  in  the  Southeast,  under  the  title  of 
"Clearing-house  certificates,"  in  cities  where  no  clear- 
ing houses  existed.  In  adopting  the  name  of  clearing- 
house certificates,  it  w^as  not  the  purpose  of  the  banks 
to  practice  deception  on  the  people,  but  to  indicate  what 
was  really  true  and  what  the  term  would  seem  to  imply, 
namely,  that  such  certificates  were  temporary  loans  made 
by  the  banks  associated  together,  and  that  the  banks 
were  pledged  for  their  redemption.  The  denominations 
in  the  cities  referred  to  were:  Albany,  Ga.,  $10,  $5,  and 
$1;  Chester,  S.  C,  $10,  $5,  and  $1;  Columbia,  S.  C,  $50, 
$20,  $10,  $5,  $2,  and  $1;  Danville,  Va.,  $100,  $50,  $20, 
$10,  $5,  $2,  and  $1;  Newman,  Ga.,  $10,  $5,  and  $1;  and 
Rock  Hill,  S.  C,  $5,  $2,  and  $1.  There  is  no  doubt  that 
the  relief  afforded  in  this  manner  was  of  great  public 
assistance  in  the  several  communities  where  it  was  given, 
effecting  results  similar  to  those  accomplished  by  the 
actual  clearing-house  loan  certificates  in  the  great  centers. 

In  1895  came  another  period  of  depression,  especially 
in  certain  localities,  but  by  no  means  so  disastrous  nor  so 
permanent  as  the  panic  of  1893.  Such  was  the  pressure 
at  Boston,  however,  that  the  clearing-house  association 
authorized  the  issue  of  loan  certificates,  which  were  taken 
out  to  the  extent  of  $235,000,   the  last  of  which  were 


Cle  a  ring-House      Methods 

retired  March  12,  1896.  In  like  manner,  at  Philadelphia 
an  issue  was  made  aggregating  $8,220,000. 

In  1896  at  New  Orleans,  alone,  clearing-house  loan 
certificates  were  issued,  this  having  been  the  eleventh 
time  that  resort  to  such  measures  had  been  made  since 
the  history  of  clearing  houses  in  this  country  began,  less 
than  a  half  century  ago.  The  largest  amount  of  certifi- 
cates outstanding  at  one  time  was  $399,000,  and  was 
attained  on  September  4.  The  last  of  the  certificates 
were  retired  and  canceled  November  17.  The  occasion 
for  the  issue  at  this  time  was,  no  doubt,  the  disturbance 
in  business  circles  arising  from  the  presidential  contest, 
which,  always  a  disturbing  factor,  w^as  in  this  year  unu- 
sually exciting.  Thus  the  New  Orleans  Clearing  House 
Association  enjoys  the  unique  distinction  of  having  on 
two  occasions — 1879  ^^^  1896 — been  the  only  association 
to  issue  loan  certificates. 

The  method  of  calculating  interest  on  certificates  has 
been  in  many  associations  a  source  of  much  difficulty.  In 
some  instances  the  clearing  houses  have  taken  no  cog- 
nizance of  the  interest  w^hatsoever,  but  left  the  members 
free  to  adjust  it  for  themselves.  It  is  clear  that  the 
interest,  like  the  balances,  must  consist  of  credits  and 
debits  which  exactly  equal  or  offset  each  other.  That  is 
to  say,  the  interest  charged  against  certain  members  for 
the  certificates  taken  out  by  them  must  exactly  equal  the 
interest  paid  to  the  members  holding  the  certificates.  It 
was  not  a  difficult  matter  to  keep  a  proper  record  of  the 
interest  to  be  charged  against  the  members,  for  the  clear- 
ing-house committee  knew  to  whom  and  in  what  amounts 


113 


N  at  10  n  a  I    Monetary     Com  m  i  s  s  i  o  n 

they  had  issued  certificates,  and  it  was  necessary  only  to 
calculate  the  interest  at  the  stipulated  rate  on  the  full 
amount  of  the  certificates  issued  to  the  several  members 
for  the  time  they  were  outstanding  and  to  place  the 
same  to  their  debit;  but  to  know  what  members  held 
certificates  issued  to  other  banks  and  in  what  amounts 
after  the  settlement  of  balances  therewith  began  was  to 
many  a  source  of  confusion. 

The  New  York  plan  has  been  perhaps  the  most  complete 
and  satisfactory,  and  was  followed  by  many  of  the  associa- 
tions. Each  member  was  required  to  send  to  the  clearing 
house  each  morning  a  statement  of  the  amount  of  certifi- 
cates on  hand.  In  a  book  kept  for  the  purpose  these 
amounts  were  entered  to  the  credit  of  the  banks,  each 
account  being  kept  on  a  separate  page.  At  the  end  of  the 
month  footings  were  made  of  the  certificates  held  by  each 
bank  for  that  time,  and  the  total  divided  by  the  number  of 
days  the  certificates  were  outstanding.  This  gave  the 
average  amount  of  certificates  on  hand  for  the  given  time, 
and  upon  this  amount  interest  was  calculated  at  the  rate 
agreed  upon  and  placed  to  the  credit  of  the  bank.  Drafts 
were  then  drawn  upon  the  banks  to  whom  certificates  had 
been  issued  for  the  interest  due  by  them.  In  turn  checks 
were  sent  to  the  banks  holding  certificates  for  the  interest 
due  to  them. 

The  same  plan  was  followed  at  Philadelphia,  but  at 
Boston  each  member  calculated  daily  the  interest  due  on 
the  certificates  held,  and  sent  to  the  clearing  house  with 
the  certificates  to  be  used  in  settlement  of  balances  a 


114 


Clearing-House      Methods 

ticket  containing  a  statement  of  the  interest  due  for  the 
time  the  certificates  were  held. 

At  Buffalo  the  interest  was  calculated  daily  and  settled 
weekly  by  draft  of  the  manager  on  debtor  banks  in  favor 
of  creditor  banks.  At  Louisville,  Ky.,  the  interest  on  the 
certificates  taken  out  in  1891  was  calculated  by  the  bank> 
the  clearing  house  taking  no  cognizance  thereof  whatso- 
ever. The  rate  was  fixed  at  9  per  cent  for  two  days — 
virtually  18  per  cent — and  was  placed  at  such  an  exorbi- 
tant figure  to  prevent  the  banks  which  took  advantage  of 
such  certificates  from  expanding  their  loans  at  a  higher 
rate  of  interest  than  they  were  paying  on  their  loan 
certificates. 

In  all  such  cases  the  question  might  arise  as  to  the 
disposition  of  the  interest  charged  against  members  on 
certificates  taken  out  but  never  used.  It  is  only  necessary 
to  say  in  reply  that  it  was  the  common  practice  to  charge 
each  with  the  full  amount  of  certificates  taken  out,  and  to 
credit  said  bank  with  the  full  amount  of  certificates  held, 
to  whomsoever  they  might  have  been  issued.  The  credit 
and  debit  interest,  therefore,  on  certificates  issued  to  any 
member,  but  never  used,  would  exactly  balance. 

The  certificates  issued  at  Wheeling,  W.  Va.,  in  1907, 
bore  no  interest,  but  they  were  returned,  the  day  following 
their  receipt  by  the  banks,  through  the  clearing  house,  with 
an  exchange  charge  of  10  cents  each  added. 

Owing  to  a  popular  misconception  of  the  character  and 
purpose  of  clearing-house  loan  certificates,  much  adverse 
criticism  regarding  them  has  been  indulged  in,  especially 
in   1893,  on  the  ground  that  such  issues  were  made  in 


"5 


National    Monetary     Commission 

violation  of  the  lo  per  cent  prohibitive  tax  on  bank-note 
currency  other  than  national  bank-note  circulation. 
Such  objection  was  based  on  the  assumption  that  clearing- 
house loan  certificates  were  a  form  of  national  bank  cur- 
rency— an  assumption  which  is  ill-founded,  both  in  theory 
and  in  fact.  The  certificates  are  essentially  temporary 
loans  made  by  the  banks  banded  together  as  a  clearing- 
house association  to  the  members  of  such  association,  and 
are  available  to  such  banks  only  for  the  purpose  of  settling 
balances  due  from  and  to  each  other.  In  the  words  of  a 
Comptroller  of  the  Currency,  they  were  but  duebills,  and 
their  sole  function  consisted  in  discharging  the  single 
obligation  at  the  clearing  house.  An  attempt  on  the  part 
of  a  bank  in  any  of  the  associations  issuing  these  certifi- 
cates to  use  them  otherwise  would  have  incurred  a  fine  and 
other  penalties,  provided  in  the  rule  governing  such  asso- 
ciations. In  no  instance,  except  those  mentioned  in  the 
South,  were  they  designated  to  serve  as  money,  and 
nowhere  else  did  they  circulate  as  money.  Hence  the 
courts  of  Pennsylvania  decided  that  they  should  not 
be  regarded  as  money.  The  imposition  of  a  tax  upon 
them,  therefore,  would  have  been  not  only  a  serious  blow 
to  one  of  the  most  effective  and  ingenious  contrivances 
for  the  deliverance  of  the  country  from  the  throes  of  panic 
that  has  yet  been  devised,  but  would  also  have  been  a 
direct  violation  of  the  spirit  of  the  law. 


ii6 


Chapter   XI. 

CLEARING-HOUSE    LOAN    CERTIFICATES    OF    THE    PANIC 

OF  1907. 

CAUSES  OF  PANIC — ACTION  OF  THE  NEW  YORK  CIvEARING 
HOUSE — CHICAGO  CI^EARING  HOUSE — BOSTON  CI.EARING 
HOUSE PHII^ADElvPHIA  CLEARING  HOUSE CLEARING- 
HOUSE CHECKS  ISSUED  AT  CANTON,  OHIO — AT  CINCINNATI 
AND  CLEVELAND — CERTIFICATES  AT  FARGO,  N.  DAK.,  AND 
LOS  ANGELES — PLAN  OF  GROUP  2,  OHIO  BANKERS'  ASSO- 
CIATION— TOTAL  OF  CERTIFICATES  ISSUED. 

During  the  latter  half  of  1907  a  panic  of  great  severity 
was  experienced  in  this  country,  and  while  many  reasons 
have  been  assigned  as  the  cause  of  the  disturbance,  there 
is,  apparently,  no  one  that  in  itself  exactly  accounts  for 
its  presence  at  that  time.  A  prominent  banker  and 
economist  has  recently  stated  as  follows: 

The  truth  is  that  responsibility  for  the  panic  of  1907  lies  at  the  door  of 
our  currency  system.  No  other  adequate  cause  can  be  found.  We  do 
business  by  the  modern  system  of  bank  credits,  but  we  have  failed  to  sup- 
plement this  machinery  with  the  means  for  readily  converting  bank  credits 
into  cash. 

Whatever  its  causes  were.  New  York  banks  found 
themselves  in  the  fall  of  that  year  contending  against 
rapidly  falling  bank  reserves  and  runs  on  one  or  two 
prominent  trust  companies,  both  of  which  facts  caused 
much  uneasiness  on  the  part  of  the  general  public. 

A  meeting  of  the  New  York  Clearing  House  Association 
was  held  on  October  26,  1907,  for  the  purpose  of  deter- 
mining whether  the  situation  was  sufhciently  serious  to 


117 


National    Monetary     Com  ni  is  s  i  on 

warrant  an  issue  of  clearing-house  loan  certificates.  It 
had  been  hoped  for  a  week  previous  to  the  calling  of  this 
meeting  that  the  crisis  might  be  successfully  passed  over 
without  the  necessity  of  an  issue  of  loan  certificates 
arising.  The  situation,  however,  grew  rapidly  worse. 
Several  of  the  banks  applied  for  and  received  assistance 
through  the  joint  action  of  many  of  the  banks,  who 
advanced  cash,  receiving  therefor  participating  certificates, 
the  clearing  house  holding  the  collateral  security  for  the 
same.  The  drain  upon  all  the  banks  was  exceedingly 
severe,  and  it  soon  became  apparent  that  aid  would 
shortly  be  solicited  by  other  members  of  the  association. 
For  this  reason  the  meeting  of  the  associated  banks  was 
called,  and  as  the  result  of  their  deliberations  a  loan  com- 
mittee was  unanimously  appointed  on  the  above-men- 
tioned date  and  proceeded  to  receive  and  pass  on  collateral 
and  issue  loan  certificates  therefor  under  the  terms  of  the 
following  resolution: 

Resolved,  That  the  clearing-house  committee,  with  the  president  of  the 
association,  be  authorized  to  receive  from  banks  members  of  the  associa- 
tion bills  receivable  and  other  securities  to  be  approved  by  said  committee, 
who  shall  be  authorized  to  issue  therefor  to  such  depositing  banks  loan 
certificates  bearing  interest  at  6  per  cent  per  annum,  and  such  loan  cer- 
tificates shall  not  be  in  excess  of  75  per  cent  of  the  market  value  of  the 
securities  or  bills  receivable  so  deposited,  and  such  certificates  shall  be 
received  and  paid  in  settlement  of  balances  at  the  clearing  house,  and  all 
rules  and  regulations  heretofore  adopted  in  the  issue  of  such  certificates 
shall  be  in  force  in  the  present  issue.  Said  committee  shall  have  power 
to  associate  with  it  such  other  bank  officers  as  they  may  judge  necessary. 

The  committee  first  issued  $11,235,000  of  certificates  to 
take  care  of  the  aforementioned  participating  receipts, 
given  for  loans  advanced  the  preceding  week. 

The  date  of  the  first  issue  was  October  26,  1907. 


118 


Clearing-House      Methods 

The  date  of  the  first  cancellation  was  November  14, 
1907. 

The  date  of  the  final  issue  was  January  30,  1908. 

The  date  of  the  final  cancellation  was  March  28,  1908. 

The  gross  issue  of  certificates  was  $101,060,000,  and 
the  maximum  amount  outstanding  was  $88,420,000  on 
December  16,  1907. 

During  the  period  of  its  existence  there  passed  through 
the  hands  of  the  committee,  including  original  deposits 
of  securities  and  substitutions  of  the  same  (both  with- 
drawals and  deposits),  collateral  aggregating  in  amount 
the  vast  total  of  $453,000,000,  of  which  $330,000,000, 
or  72.92  per  cent,  consisted  of  commercial  paper  and 
$123,000,000,  or  27.08  per  cent,  of  stocks,  bonds,  and 
short-time  railroad  and  other  similar  notes. 

Three  thousand  five  hundred  and  forty-eight  certificates 
were  issued  as  follows : 

412,  at  $100,000  each $41,  200,  000 

522,  at  $50,000  each 26,  100,  000 

1,005,  at  $20,000  each 20,  100,  000 

1,123,  at  $10,000  each u,  230,  000 

486,  at  $5,000  each 2,  430,  000 

The  greatest  amount  of  certificates  issued  to  any  one 
bank  was  $17,000,000,  an  amount  of  certificates  greater 
than  the  aggregate  issue  of  any  individual  clearing  house 
in  the  United  States,  with  the  exception  of  Chicago! 
The  smallest  amount  issued  to  any  bank  was  $250,000, 
which  was  done  in  two  instances. 

The  aggregate  amount  of  the  issue,  as  will  be  seen  by 
a  comparison  of  figures,  was  two  and  a  half  times  as  large 
as  the  issue  of  1893,  $41,490,000,  which  was,  up  to  that 
time,  the  maximum  amount  that  had  been  put  out. 

119 


National    Monetary     Commission 


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o 


Clearing-House      Methods 

Beginning  with  i860  the  issues  of  clearing-house  loan 
certificates,  at  New  York  alone,  have  amounted  to  the 
enormous  aggregate  of  $269,839,000,  all  of  which  have 
been  redeemed  without  the  loss  of  a  single  dollar,  and 
in  periods  ranging  from  three  to  seven  months  from  the 
date  of  first  issue. 

The  issue  of  clearing-house  loan  certificates  by  the 
Chicago  Clearing  House  Association  constituted  a  dis- 
tinct innovation,  since  the  action  was  taken  for  the  first 
time  in  the  history  of  the  association.  In  1893  the  subject 
of  making  an  issue  of  certificates  was  under  serious  con- 
sideration, and  a  vote  was  taken  which  showed  a  majority 
in  favor  of  such  action.  Considerable  aid  had,  however, 
already  been  given  to  the  needy  members,  and  the  crisis 
was  passed  without  the  necessity  for  issuing  certificates 
becoming  apparent. 

On  October  26,  1907,  the  same  day  on  which  the  New 
York  association  took  its  action,  the  clearing-house 
association  at  Chicago  met  and  passed  resolutions  author- 
izing the  issue  of  clearing-house  loan  certificates,  under 
conditions  very  similar  to  those  governing  their  issue 
by  other  large  cities.  The  certificates  were  issued  under 
the  supervision  of  the  clearing-house  committee  to  the 
extent  of  75  per  cent  of  the  market  value  of  the  collateral 
deposited  and  bore  interest  at  the  rate  of  7  per  cent. 

This  original  action  at  Chicago  was  followed  on  No- 
vember 6,  1907,  by  the  passing  of  a  supplemental  set  of 
resolutions  authorizing  the  issue  of  clearing-house  checks, 
a  sample  of  which  is  shown  among  the  illustrations,  as 
follows : 

2C040 — 10 — —9  121 


National    Monetary     Commission 

The  undersigned  members  of  the  Chicago  Clearing  House  Association 
do  bind  themselves  by  the  following  agreement  supplemental  to  and  in 
extension  of  the  mutual  agreement  which  was  entered  into  by  them  under 
the  date  of  October  29,  1907,  for  the  purpose  of  assisting  and  protecting 
the  community  and  facilitating  interbank  settlements  resulting  from 
their  daily  exchanges: 

First.  Any  bank  being  a  member  of  the  Chicago  Clearing  House  Asso- 
ciation may  at  any  time  surrender  to  the  clearing-house  committee  any 
loan  certificate  held  by  it  which  was  issued  under  said  principal  agreement 
of  October  29,  1907,  to  any  other  member  of  the  association  and  receive 
in  lieu  thereof  checks  to  the  amount  of  the  principal  thereof,  in  the  de- 
nominations of  $2,  $5,  and  $10,  as  desired,  drawn  by  or  under  the  direc- 
tion of  the  clearing-house  committee  on  the  banks  to  whom  the  surrendered 
certificate  was  originally  issued  and  made  payable  through  the  Chicago 
clearing  house  only  to  the  bank,  or  bearer,  applying  therefor,  as  aforesaid, 
which  checks  shall  not  draw  interest. 

Second.  The  checks  so  issued  in  lieu  of  certificates  surrendered  shall 
run  to  the  bank  applying  therefor  or  bearer,  and  be  negotiable  like  other 
bank  checks,  but  neither  the  clearing-house  association,  the  clearing- 
house committee,  nor  any  member  thereof  shall  be  liable  thereon,  in 
respect  thereto;  but  the  same  shall  have  the  benefit  and  protection  pro 
rata  of  the  securities  deposited  under  said  principal  agreement  to  the  same 
extent  as  the  certificates  upon  the  surrender  of  which  they  were,  respec- 
tively, issued,  and  so  far  as  said  securities  are  concerned  shall  stand  in 
the  place  of  such  surrendered  certificates. 

Third.  At  any  time  any  bank  on  which  said  checks  are  drawn  may 
present  any  thereof  that  may  have  been  paid  by  it  to  the  clearing-house 
committee  and  surrender  the  same  and  receive  credit  therefor  on  or  against 
the  principal  of  the  loan  certificates  in  place  of  which  the  same  were  re- 
spectively issued.  Any  interest  which  may  accrue  or  be  allowed  on  any 
of  said  loan  certificates,  while  the  same  is  held  by  the  clearing-house  com- 
mittee as  aforesaid  and  checks  are  outstanding  against  the  same,  shall 
accrue  and  be  allowed  and  paid  to  the  Chicago  Clearing  House  Association. 

The  first  clause  of  the  foregoing  agreement  was  amended 
on  November  13  to  read  as  follows: 

Any  bank,  being  a  member  of  the  Chicago  Clearing  House  Association, 
may  at  any  time  surrender  to  the  clearing-house  committee  any  loan  cer- 
tificate held  by  it  which  was  issued  under  said  principal  agreement  of  Octo- 
ber 29,  1907,  to  any  member  of  the  association  and  receive  in  lieu  thereof 
checks  to  the  amount  of  the  principal  thereof  in  denominations  of  $1,  $2, 
$5,  and  $10,  as  desired,  drawn  by  or  under  the  direction  of  the  clearing- 
house committee  on  the  following  banks  designated  for  that  purpose,  viz, 


Clearing-House     Methods 

the  First  National  Bank,  the  Corn  Exchange  National  Bank,  the  Conti- 
nental National  Bank,  and  the  Commercial  National  Bank,  and  made  pay- 
able through  the  Chicago  clearing  house  or  to  the  bank,  or  bearer,  applying 
therefor,  as  aforesaid,  which  checks  shall  not  draw  interest. 

Thus  it  will  be  seen  that  the  Chicago  Clearing  House 
Association  issued  checks  in  amounts  of  $i,  $2,  $5,  and  $10 
designed  for  general  circulation,  to  the  extent  of  about 
$7,500,000,  secured  by  clearing-house  loan  certificates, 
which  in  turn  were  secured  by  133  per  cent  of  good  col- 
lateral. The  aggregate  amount  of  clearing-house  loan 
certificates  issued  in  Chicago  was  $39,240,000,  and  the 
maximum  amount  outstanding  was  $38,285,000  on  De- 
cember 18,  1907. 

The  first  issue  was  made  on  October  28,  the  last  issue 
on  December  17,  1907.  The  first  cancellation  was  made 
on  December  14,  1907,  and  the  final  cancellation  on  Jan- 
uary 17,  1908,  thus  showing  the  issue  to  have  been  of  less 
than  three  months'  duration. 

During  the  last  few  days  of  October  the  Boston  Clear- 
ing House  Association  met  and  appointed  a  committee  of 
six  bank  officers,  of  which  the  chairman  of  the  clearing- 
house committee  was  one,  to  receive  bills  and  notes  re- 
ceivable and  other  securities  to  be  approved  by  the  com- 
mittee, who  thereupon  issued  certificates  to  an  amount 
not  in  excess  of  75  per  cent  of  the  value  of  such  property 
deposited,  as  determined  by  the  committee,  the  certifi- 
cates bearing  interest  at  the  rate  of  7.3  per  cent. 

The  resolutions  further  provided  that  any  loss  arising 
from  the  issue  of  the  loan  certificates  should  be  borne  by 
the  banks  of  the  clearing-house  association,  pro  rata,  ac- 
cording to  the  average  daily  amount  which  each  bank 


123 


National    Monetary     Commission 

had  sent  to  the  clearing  house  during  the  twelve  months 
ending  September  30,  1907. 

Under  these  regulations  a  total  issue  of  $12,595,000 
was  made.  The  first  certificates  were  put  out  on  Octo- 
ber 28,  1907,  and  the  last  were  withdrawn  and  canceled 
on  January  24,  1908. 

The  associated  banks  of  Philadelphia  issued  clearing- 
house certificates  under  an  agreement  which  went  into 
effect  on  September  24,  1873,  and  has  remained  substan- 
tially without  change  from  that  time.  In  all  essential 
details  it  is  similar  to  the  regulations  at  New  York,  and, 
therefore,  needs  no  special  comment. 

On  account  of  the  temporary  scarcity  of  currency 
employers  found  it  necessary  to  make  payments  of  wages 
in  pay  checks,  payable  through  the  clearing  house, 
instead  of  in  cash,  and  it  was  deemed  important  that  such 
checks  should  be  rendered  as  readily  available  as  possible. 
A  special  meeting  of  the  clearing-house  association  was, 
therefore,  called  on  November  16,  1907,  and  the  following 
resolutions  were  unanimously  adopted: 

Resolved,  That  it  is  recommended  by  the  clearing  house  of  Philadelphia 
that  hereafter  pay-roll  checks  made  payable  through  the  exchanges  of  the 
Philadelphia  clearing  house  shall  be  certified  before  issue  by  the  banks 
upon  which  they  may  be  respectively  drawn. 

Resolved,  That  the  clearing-house  association  recommend  that  no  pay- 
roll checks  be  certified  by  any  member  of  the  association  unless  furnished 
by  the  American  Bank  Note  Company  in  the  form  approved  by  the  clear- 
ing-house committee. 

Resolved,  That  such  pay-roll  checks  shall  only  be  furnished  to  members 
of  the  association  upon  application  to  the  clearing-house  committee. 

Resolved,  That  the  members  of  this  association  before  certifying  pay- 
roll checks  shall  open  a  pay-roll  account  for  the  depositor  to  whom  such 
checks  are  issued,  to  which  account  said  pay-roll  checks  shall  be  charged 
when  paid. 


124 


Clearing-House      Methods 

Resolved,  That  returns  of  the  amount  of  checks  issued  and  outstanding, 
as  shown  by  the  balance  to  the  credit  of  pay-roll  account,  shall  be  made 
daily  to  the  clearing-house  committee  by  the  banks  which  have  accepted 
and  certified  them. 

The  aggregate  issue  of  clearing-house  loan  certifi- 
cates by  the  Philadelphia  banks  was  $13,695,000,  an 
amount  considerably  in  excess  of  that  of  any  previous 
issue. 

Many  of  the  clearing  houses  of  the  country  issued 
clearing-house  checks,  or  cashier's  checks,  generally 
under  proper  safeguards,  in  small  denominations,  which 
were  intended  for  general  use,  to  take  the  place  of  cash 
temporarily  withdrawn  from  circulation. 

Canton,  Ohio,  is  a  center  of  manufacturing  inter- 
ests of  considerable  magnitude,  and,  therefore,  re- 
quired large  amounts  of  cash  for  pay  rolls,  which  was 
not  available.  A  consultation  was  held  between  the 
bankers  and  their  manufacturing  clients,  with  the  result 
that  the  use  of  pay  checks  was  agreed  upon.  One 
general  form  was  used,  there  being  but  three  denomi- 
nations— $5,  $10,  and  $20 — and  each  bank  provided 
its  customers  with  a  supply  of  these.  The  checks  were 
made  payable  to  bearer  through  the  Canton  clearing 
house  only,  and  had  to  be  signed  by  an  authorized 
person  connected  with  the  firm  or  corporation  issuing 
them.  These  checks,  however,  were  found  unsatisfactory, 
partly  from  the  fact  that  when  small  purchases  were 
made  with  them  the  tradespeople  were  obliged  to  make 
change  with  cash,  which  soon  exhausted  their  supply. 
Subsequently,  therefore,  clearing-house  checks,  or  cash- 
ier's  checks,    payable    to    bearer   through   the   clearing 


125 


National    Monetary     Commission 


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126 


Clearing-House      Methods 

house  only,  in  amounts  of  $i,  $2,  $5,  and  $10,  were 
issued  to  the  extent  of  about  $200,000.  These  checks 
had  no  collateral  security  back  of  them,  and  were  ac- 
cepted purely  on  the  responsibility  of  the  issuing  bank. 
A  specimen  of  this  check  is  shown  herewith. 

A  special  committee  was  appointed  by  the  Cincin- 
nati clearing  house  on  October  28,  1907,  and  early  in 
November  of  that  year  checks,  printed  from  steel 
plates,  in  denominations  of  $2,  $5,  $10,  and  $20,  were 
issued  to  each  of  the  14  clearing-house  banks.  The 
committee  received  from  each  bank  high-class  collateral 
security  of  not  less  than  20  per  cent  in  excess  of  the 
face  value  of  the  certificates  delivered  to  it,  which  col- 
lateral was  held  until  the  checks  were  retired  and  can- 
celed. A  list  of  merchants  who  had  expressed  a  will- 
ingness to  cash  these  checks,  numbering  in  excess  of 
300  names,  was  published  in  the  papers,  and  in  several 
instances  a  premium  of  as  high  as  5  per  cent  was  al- 
lowed for  cash  purchases  made  and  settled  by  these 
cashier's  checks.  The  total  amount  of  the  checks  so 
issued  was  about  $2,000,000,  and  as  soon  as  the  cur- 
rency situation  again  became  normal  they  practically 
retired  themselves. 

The  action  of  the  Cleveland  association  in  this  re- 
gard was  substantially  the  same  as  that  taken  by  Chi- 
cago, with  the  exception  that  the  clearing-house  loan 
certificates  issued  by  the  associated  banks  of  Cleve- 
land were  not  used  in  the  settlement  of  balanced  at 
all,  but  were  made  the  basis,  dollar  for  dollar,  for  the 
issue  of  clearing-house  checks  in  denominations  of  $1, 


127 


National    Monetary     Commission 


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128 


Clearing-House      Methods 

$2,  $5,  and  $io,  of  which  it  is  said  they  performed 
nearly  all  the  functions  of  currency  during  the  brief 
period  of  their  existence. 

The  Fargo  (N.  Dak.)  Clearing  House  Association 
appointed  a  trustee  to  receive  collateral  and  issue  clear- 
ing-house loan  certificates  in  denominations  of  $5,  $10, 
$20,  $100,  and  $500.  These  certificates,  a  facsimile 
of  which  is  presented  among  the  illustrations,  were 
payable  on  or  before  three  months  after  date,  were 
signed  by  the  president  and  secretary  and  attested 
by  the  trustee,  and  were  issued  to  the  extent  of  only 
50  per  cent  of  the  collateral  deposited — an  unusually 
low  percentage. 

In  addition  to  an  issue  of  clearing-house  loan  cer- 
tificates made  by  the  Los  Angeles  association  on  Octo- 
ber 30,  1907,  authorization  was  also  given  for  an  issue 
of  what  was  termed  "clearing-house  circulating  cer- 
tificates or  scrip,"  designed  as  a  circulating  medium 
for  the  general  use  of  the  public.  These  "circulating 
certificates,"  in  the  regulations  governing  their  issue, 
closely  resemble  the  clearing-house  checks  issued  by 
several  other  associations,  and  their  purpose  was  iden- 
tical. In  form  they  were  somewhat  more  elaborate 
than  were  most  of  such  certificates  issued  during  that 
period,  the  idea  being  to  render  them  as  difficult  of 
counterfeiting  as  was  possible. 

Most  of  the  clearing  houses  that  issued  both  clear- 
ing-house loan  certificates  and  clearing-house  checks 
secured  the  checks  by  the  deposit  of  loan  certificates, 
which  were  secured  by  collateral,   but   at  I/3S  Angeles 


129 


National    Monetary     Commission 


130 


Clearing-House      Methods 

both  the  loan  certificates  and  the  scrip  were  directly- 
secured  by  collateral,  the  former  to  the  extent  of  133 
per  cent,  and  the  latter  by  securities  valued  at  200  per 
cent  of  the  amount  issued. 

The  loan  committee  of  the  Oklahoma  City  Clearing 
House  Association  adopted  resolutions  permitting  the 
banks  to  take  out  certificates  in  the  same  form  as  those 
used  at  St.  Louis,  but  provided  that  no  bank  should  be 
required  to  hold,  in  the  aggregate,  an  amount  of  these 
certificates  that  would  more  than  equal  5  per  cent  of 
their  deposits  on  the  day  the  certificates  were  offered  to 
them  in  payment  of  balances  at  the  clearing  house,  and 
that  when  a  bank  having  a  credit  in  the  clearing  house 
reached  the  5  per  cent  limit  the  debit  bank  should  pay 
currency  or  exchange  at  the  option  of  such  bank. 

The  action  taken  by  the  associated  banks  of  group 
No.  2  of  the  Ohio  Bankers'  Association,  which  includes 
the  banks  of  Allen,  Auglaize,  Darke,  Hancock,  Harden, 
Logan,  Mercer,  Miami,  Paulding,  Putnam,  Shelby,  and 
Van  Wert  counties  in  that  State,  is  worthy  of  comment, 
since  it  offers  the  first  concrete  example  of  the  possibili- 
ties of  the  banks  of  any  particular  section  of  any  State, 
uniting  in  an  effort  to  overcome  the  disastrous  conse- 
quences resulting  at  times  from  false  rumors  in  panic 
periods.  The  agreement  under  which  the  group  above 
mentioned  operates  contains  some  new  and  interesting 
features,  and  it  is  therefore  presented  in  full,  viz: 

The  undersigned  associated  banks,  members  of  group  No.  2  of  the  Ohio 
Bankers'  Association,  each  for  itself  or  himself,  as  well  as  mutually  with 
the  others  hereto,  in  consideration  of  the  benefits  derived  and  to  be  derived 
from  the  following  agreements,  stipulations,  and  conditions,  agree  hereto. 


131 


National    M on  et ar y     Commission 

and  each  bank  or  banker  affixing  it  with  his  name  hereto,  or  by  resolution 
adopting  and  confirming  these  articles,  agrees  to  be  bound  by  each  and 
all  of  the  provisions  hereof. 

1.  It  is  intended  hereby  to  provide  protection  to  the  banks  and  bankers 
and  the  patrons  thereof  joining  herein. 

2.  Three  trustees  shall  be  named  and  vacancies  filled  by  the  executive 
committee  of  group  No.  2  of  the  Ohio  Bankers'  Association,  and  these  three 
shall  constitute  a  board  of  trustees,  hereinafter  referred  to  as  "said  board," 
for  the  purposes  of  carrying  out  this  agreement. 

3.  Any  two  members  of  said  board  are  authorized  to  act  hereunder. 

4.  Said  board  shall  have  full  authority  to  grant  relief  to  any  bank  or 
banker  hereof  upon  satisfactory  assets  and  the  title  thereto  being  trans- 
ferred and  delivered  to  said  board. 

5.  Said  board  shall  be  the  sole  judges  of  the  necessity,  sufficiency,  and 
deservability  of  such  relief,  as  well  as  of  the  value  of  such  assets,  and  the 
amount  advanced  to  any  bank  or  banker  shall  in  no  case  exceed  60  per 
cent  of  the  cash  value  of  such  assets  so  transferred  and  delivered  to  said 
board. 

6.  A  member  hereof  desiring  relief  in  either  manner  herein  named  shall 
apply  and  furnish  all  necessary  information  and  details  required  by  said 
board,  and  comply  with  all  requests  of  said  board  and  pay  all  expenses 
incident  to  the  entire  transaction,  whether  as  to  application  furnishing 
relief  or  repayment. 

7.  All  advances  made  under  the  order  of  said  board  to  any  member 
hereof  shall,  together  with  8  per  cent  interest,  be  repaid  within  sixty-five 
days  from  the  making  of  such  order  by  said  board. 

8.  In  order  to  enable  said  board  to  act  promptly  upon  any  application 
for  relief,  each  member  hereof  shall,  on  January  i  and  July  i  of  each  year, 
furnish  to  the  chairman  of  said  board  a  detailed  statement  of  the  resources 
and  liabilities  of  such  member,  which  information  is  for  the  sole  use  of  said 
board,  and  the  improper  disclosure  by  any  member  of  said  board  shall  be 
cause  for  his  removal  by  the  executive  committee. 

9.  In  case  relief  is  decided  upon  to  any  member  hereof,  said  board  hav- 
ing fixed  the  amount  of  such  relief  shall  apportion  between  the  members 
hereof  the  amount  to  be  paid  by  each,  based  upon  its  resources,  and  each 
member  shall  be  notified  of  the  fact  of  relief,  the  amount  to  be  paid  by  such 
member,  and  the  same  shall  at  once  be  sent  to  such  member  granted  relief, 
payable  in  gold,  silver,  or  currency,  as  the  sending  member  may  elect,  and 
a  failure  so  to  do  as  provided  shall  subject  such  defaulting  member  to  a 
forfeiture  of  his  rights  hereunder  for  relief  and  the  surrender  of  his  certificate 
of  protection  hereunder;  and  each  member  so  advancing  shall  at  once 
notify  said  board  of  the  date,  amount,  and  manner  of  such  remittance,  and 
each  member  so  relieved  shall  not  only  receipt  to  each  assisting  member 
but  shall  send  a  copy  of  such  receipt  to  said  board.     Upon  assurance  of 


132 


Clearing-House      Methods 

such  contribution  said  board  shall  issue  to  each  contributing  member  a 
certificate  of  the  fact,  date,  and  amount  of  such  contribution. 

10.  Upon  failure  of  any  member  so  aided  to  pay  any  sum,  interest,  and 
expenses  as  above  provided  when  due,  then  said  board  in  their  names,  fol- 
lowed by  the  word  "trustees,"  are  authorized  to  sue  and  recover  from 
said  defaulting  member  the  said  amount,  interest,  and  expenses,  or  con- 
vert said  assets  into  money  by  suit  as  above  or  otherwise,  or  said  board 
may,  at  its  election,  sell  at  public  or  private  sale,  with  or  without  notice, 
the  assets  so  transferred  and  delivered  to  it  by  such  defaulting  member, 
and  said  board  is  authorized,  by  the  signature  of  its, chairman,  as  follows: 

"  Without  recourse ,  Chairman." 

to  indorse,  transfer,  and  deliver  upon  such  sale  the  full  and  legal  title  to  the 
purchaser  of  any  or  all  assets  so  delivered  to  it  by  such  defaulting  mem- 
ber. After  closing  out  the  transaction,  any  balance  left  in  the  hands  of 
said  board  after  paying  the  amount,  interest,  and  costs  as  a  result  of  such 
relief  shall  return  to  said  defaulting  member  any  balance  in  its  hands;  or, 
in  case  the  sale  of  said  assets  shall  not  be  sufficient  to  fully  pay  said  amount 
so  furnished,  together  with  interest  and  costs  as  above  provided,  said  de- 
faulting member  shall  be  liable  to  said  board  for  such  balance,  to  be  col- 
lected by  suit  or  otherwise  as  above  provided. 

11.  All  repayments  shall  be  to  said  board  and  shall  be  distributed  by  it 
among  the  members  contributing  to  such  meml^ers  relieved  upon  the  same 
basis  that  such  relief  was  extended. 

12.  In  case  it  should  be  determined  by  the  executive  committee  of  said 
group  that  checks  should  be  used  for  the  relief  of  any  member  hereof  in 
lieu  of  direct  relief  as  hereinbefore  provided,  then,  and  in  that  event,  said 
board  may  receive  of  the  assets  to  be  selected,  valued,  and  determined  as 
hereinbefore  provided,  and  may  furnish  blank  checks  for  the  use  of  such 
member,  to  be  issued  by  it  to  the  amount  of  60  per  cent  of  the  value  of  the 
assets  so  indorsed  and  deposited  with  said  board  as  security  against  said 
checks,  and  for  the  purpose  of  protecting  the  other  members  hereof  against 
loss  by  reason  of  the  issuance  of  such  checks  by  such  member.  Said  blank 
checks  shall  be  lithographed,  and  said  board  shall  keep  a  record  of  the 
numbers  and  amounts  of  such  checks  as  to  each  bank  so  receiving  same 
for  its  benefit.  Said  checks  shall  also  on  their  face  contain  the  following 
statement: 

"In  addition  to  the  liability  of  this  bank,  collateral  has  been  deposited 
with  the  board  of  trustees  of  associated  banks,  group  No.  2,  Ohio  Bankers' 
Association,  as  additional  security  herefor;"  and  also  in  the  lower  left- 
hand  corner  the  words  "  Payable  in  exchange."  Upon  the  acceptance 
of  the  collateral  and  delivery  of  said  blank  checks  said  member  so  receiving 
the  same  may  issue  them,  and  each  member  hereto  agrees  to  receive  them 
in  the  course  of  business.  Said  bank  so  receiving  said  checks  shall,  at  the 
earliest  possible  date,  redeem  them  by    canceling  them    and  presenting 


133 


National    Monetary     Commission 

them  to  said  board,  receiving  in  return  the  collateral  deposited,  but  such 
collateral  shall  be  held  and  retained  as  security  for  the  members  hereof 
until  such  checks  have  been  canceled  and  returned,  each  member  hereof 
to  be  notified  of  the  amount  of  such  checks  so  delivered  to  each  member 
upon  such  collateral.  Said  board  shall  have  the  right  in  the  interest  of 
all  members  hereof  to  call  for  the  cancellation  and  return  of  said  checks 
at  such  time  or  times  as  it  deems  best,  and  if,  for  any  reason,  said  member 
so  receiving  said  checks  fails  to  comply  with  said  request,  said  board  may 
sell  such  collateral  either  at  public  or  private  sale,  with  or  without  notice, 
and  transfer  to  the  purchaser  thereof  perfect  title  therein  in  the  following 
manner,  to  wit: 

"  Without  recourse 

,  Chairman." 

and  use  the  proceeds  of  such  sale  in  the  redemption  of  said  checks  so 
received  by  said  bank,  the  balance,  if  any,  to  be  delivered  to  said  member; 
or,  in  case  the  sale  of  said  collateral  is  not  sufficient  to  redeem  said  checks, 
any  balance  shall  be  a  claim  against  such  member. 

13.  Any  member  having  received  relief  in  either  manner  above  named 
shall  not  make  any  loans  or  discounts  until  the  relief,  interest,  and  expenses 
above  named  shall  have  been  fully  paid  or  said  checks  fully  redeemed,  and 
any  breach  of  this  clause  shall  render  due  the  sum  so  advanced  and  the 
interest  thereon,  or  the  immediate  rights  to  sell  collateral  under  the  "check" 
clause  hereof,  and  said  board  may  proceed  as  though  the  full  limit  of  time 
had  elapsed  for  repayment  of  said  sum  advanced  and  interest  thereon. 

14.  It  is  expressly  understood  and  agreed  that  said  board  and  its  mem- 
bers, when  appointed,  are  the  trustees  for  the  members  hereof,  fully  author- 
ized in  the  premises  to  do  all  things,  to  fully  carry  out  the  purposes  hereof 
and  they,  by  so  acting,  assume  no  personal  liability. 

15.  On  account  of  the  number  of  parties  hereto  this  agreement  is  printed, 
and  the  signature  of  any  member  hereof  to  any  printed  copy  mailed  to  the 
chairman  of  said  board  shall  bind  such  member  for  himself  and  mutually 
with  all  others. 

16.  Any  member  hereof  who  may  engage  in  what,  in  the  judgment  of 
said  board,  is  illegal  or  improper  banking  shall  forfeit  its  membership 
herein  when  said  board  in  its  discretion  deems  it  best  to  so  declare,  and 
the  certificate  so  issued  to  such  member  shall  be  returned  to  said  board 
and  all  rights  of  said  member  hereunder  shall  cease  and  determine,  except 
as  to  its  right  to  be  reimbursed  when  and  as  any  other  members  are  reim- 
bursed for  any  advances  by  it  made  for  the  relief  of  any  other  member 
under  the  terms  hereof.  After  January  i,  190S,  applications  for  member- 
ship hereto  shall  be  upon  written  application  directed  to  the  chairman 
of  the  board  of  trustees,  and  membership  can  be  granted  upon  the  approval 
of  two  members  of  said  board. 


134 


Clearing-House      Methods 

The  object  contemplated  by  this  agreement  was  the 
protection  of  the  members  of  the  group  against  the  dis- 
astrous results  of  rumor  and  consequent  "runs"  by  ex- 
tending to  the  needy  ones,  who  were  worthy  to  receive 
it,  such  assistance  as  they  might  require  to  tide  them 
over  their  troubles.  In  other  words,  it  was  a  plan  for  the 
mutual  protection  of  the  banks  in  this  particular  section, 
and  was  one  that  might  well  be  emulated,  under  like 
circumstances,  by  any  group  of  any  state  association 
in  the  country. 

During  the  two  or  three  days  remaining  in  October, 
after  the  New  York  Clearing  House  Association  had 
taken  action,  the  clearing  houses  of  the  country,  with 
practical  unanimity,  met  and  made  provision,  at  least, 
for  the  issue  of  some  form  of  instrument  that  would  aid 
in  relieving  the  existing  conditions.  A  few  clearing 
houses,  prominent  among  which  was  the  association  at 
Washington,  D.  C,  found  no  occasion  for  action  at  all, 
while  others  met  and  made  provision,  so  that  in  case  of 
need  there  would  be  no  delay  in  getting  the  machinery 
going,  but  in  the  majority  of  cases  the  situation  was 
sufficiently  trying  to  cause  the  immediate  issue  of  such 
instruments.  These  instruments  bore  rates  of  interest 
varying  from  5  to  lo  per  cent,  and  were  issued  for  from 
50  to  80  per  cent  of  the  collateral  deposited  to  secure 
them. 

It  is  practically  impossible  to  estimate  the  amount 
of  these  instruments  outstanding  at  any  one  time. 
Suffice  it  so  say  that  it  seems  safe  to  assert  that  in  excess 
of  $250,000,000  of  them,  in  the  aggregate,  were  issued 


135 


National    Monetary     Commission 

during  the  panic  by  the  various  clearing  houses  of  the 
country,  and  in  addition  thereto  a  few  of  the  railroads 
and  some  of  the  larger  industrial  corporations  issued 
checks  of  various  denominations,  which  were  used  in 
making  payments  of  wages  to  their  employees  during 
the  period  of  extreme  stringency,  which  checks  passed 
current  for  the  time  being. 

Taken  as  a  whole,  these  instruments  served  well  the 
purpose  for  which  they  were  issued,  and  once  again  the 
utility  of  them  as  an  emergency  measure  was  demon- 
strated in  a  practical  way,  and  on  a  scale  the  magnitude 
of  which  had  never  before  been  approached. 


136 


Chapter  XII. 

CLEARING-HOUSE  BANK  EXAMINERS. 

GENERAL  REMARKS — EXAMINER  APPOINTED  AT  CHICAGO  IN 
1906 — MINNEAPOLIS  AND  ST.  PAUL — ST.  LOUIS — LOS  AN- 
GELES—KANSAS CITY  AND  ST.  JOSEPH — PHILADELPHIA — 
DETAILS  OF  PROPOSED  GROUP  PLAN  OF  THE  CALIFORNIA 
bankers'  ASSOCIATION. 

In  the  first  edition  of  this  book,  pubUshed  some  nine 
years  ago,  the  writer  strongly  advocated  the  appointment, 
especiaUy  by  the  stronger  clearing  houses  of  the  country, 
of  clearing-house  bank  examiners,  whose  duty  it  should 
be  to  make  periodical  examinations  of  each  bank  member 
of  the  associations  with  which  they  were  affiliated,  as  a 
desirable  means  by  which  to  reduce  to  a  minimum  the 
number  of  bank  failures  due  to  mismanagement  and  bad 
judgment. 

This  recommendation  was  in  no  wise  intended  as  a 
reflection  upon  the  examinations  pursued  under  national 
and  state  authority.  The  national  and  state  officers  are 
limited  in  their  powers  of  criticism  to  actual  infringements 
on  the  law,  and  before  they  can  take  steps  to  correct  such 
infringements  capital  has  often  become  impaired  and 
failure  is  threatened. 

Most  bank  failures  are  due  to  the  gradual  acquirement 
of  undesirable  assets  over  a  period  of  years,  and  if  some 

20040 — 10 10  137 


National    M  o  n  e  t  a  r  y     Commission 

authority  exists  with  power  to  make  recommendations  of 
a  remedial  character,  with  the  further  power  to  enforce 
such  recommendations,  if  necessary,  there  is  httle  doubt 
that  many  bank  failures  would  be  averted. 

The  panic  of  1907  presented  many  striking  examples  of 
just  what  is  intended  to  be  emphasized  in  this  chapter, 
viz,  that  under  the  careful  supervision  of  a  competent 
and  reliable  examiner  many  of  the  assets  of  the  failed 
banks,  upon  which  it  was  impossible  for  them  to  realize 
at  a  time  when  they  needed  their  funds,  would  probably 
have  been  liquidated  upon  his  recommendation  and  ad- 
vice long  before  the  necessity  for  such  liquidation  had 
arisen. 

Mr.  J.  B.  Forgan,  of  Chicago,  has  recently  said  on  this 
subject: 

A  competent  examiner — and  there  are  many  such  now  in  the  govern- 
ment employ — while  he  can  not  pass  judgment  on  all  the  loans  in  a  bank, 
can,  after  a  careful  examination,  or  a  series  of  examinations,  form  a  won- 
derfully correct  judgment  as  to  the  general  character  of  its  assets  and  as  to 
whether  its  management  is  good  or  bad,  conservative  or  reckless,  honest 
or  dishonest.  Examinations,  as  they  are  now  conducted,  have  a  most 
beneficial  influence  on  bank  management,  especially  by  way  of  restraint. 
The  correspondence  carried  on  by  the  Comptroller,  based  on  the  examiners' 
reports,  does  an  inestimable  lot  of  good  in  the  way  of  forcing  bank  officers 
to  comply  with  the  law  and  in  compelling  them  to  face  and  provide  for 
inown  losses  as  they  occur.  Supervision  by  examination  does  not,  how- 
ever, carry  with  it  control  of  management  and  can  not,,  therefore,  be  held 
responsible  for  either  errors  of  judgment  or  lapses  of  integrity.  Examina- 
tion is  always  an  event  after  the  act,  having  no  control  over  a  bank's 
initiative,  which  rests  exclusively  with  the  executive  oflficers  and  directors, 
and  depends  entirely  on  their  business  ability,  judgment,  and  honesty  of 
purpose. 

The  clearing-house  association  of  Chicago  was  the 
pioneer  in  the  establishment  of  an  independent  system  of 
clearing-house   bank   examinations   in    this   country,    its 

138 


Clearing-House      Methods 

system  having  been  inaugurated  on  June  i,  1906,  with 
resuhs  that  have,  to  the  present  time,  more  than  fulfilled 
the  expectations  of  the  bankers  of  that  community.  The 
chairman  of  the  clearing-house  committee,  speaking  in 
this  connection  only  recently,  said: 

The  result  of  our  experience  in  Chicago  is  most  satisfactory  and  gratify- 
ing. The  banks  have  almost  unanimously  adopted  every  suggestion  made 
by  the  clearing-house  committee  for  their  betterment  and  strength.  In 
several  instances  the  committee,  from  its  wider  knowledge  of  the  financial 
situation,  has  been  able  to  save  some  of  the  smaller  institutions  from  loss 
by  enabling  them  to  take  hold  of  conditions  in  time.  I  can  not  properly 
go  into  such  details  as  would  illustrate  the  effectiveness  of  clearing-house 
examinations  as  we  have  experienced  it,  and  can  only  say  in  a  general  way 
that  it  has  been  even  more  satisfactory  than  I  anticipated  it  would  be 
before  it  was  undertaken. 

In  substantially  his  own  words  the  Chicago  examiner 
operates  under  the  following  conditions:  The  examina- 
tions extend  to  all  the  associated  banks  of  Chicago  and  to 
all  nonmember  institutions.  The  w^ork  is  conducted  with 
the  aid  of  five  regular  assistants,  each  fitted  by  experience 
to  thoroughly  do  that  part  of  the  work  assigned  to  him. 
The  examinations  include,  besides  a  verification  of  the 
assets  and  Habilities  of  each  bank,  so  far  as  is  possible,  an 
investigation  into  the  workings  of  every  department  and 
are  made  as  thorough  as  is  practicable.  After  each  exam- 
ination the  examiner  prepares  a  detailed  report  in  dupli- 
cate, describing  the  banks'  loans,  bonds,  investments,  and 
other  assets,  mentioning  specially  all  loans,  either  direct 
or  indirect,  to  officers,  directors,  or  employees,  or  to  cor- 
porations in  which  they  may  be  interested.  The  report 
also  contains  a  description  of  conditions  found  in  every 
department.  One  of  these  reports  is  filed  in  the  vaults  of 
the  clearing  house,  in  the  custody  of  the  examiner,  and 

139 


National    Monetary     Commission 

the  other  is  handed  to  the  examined  bank's  president  for 
the  use  of  its  directors.  The  individual  directors  are  then 
notified  that  the  examination  has  been  made  and  that  a 
copy  of  the  examiner's  report  has  been  handed  to  the 
president  for  their  use.  In  this  way  every  director  is 
given  an  opportunity  to  see  the  report,  and  the  examiner, 
in  every  instance,  insists  upon  receiving  acknowledgment 
of  the  receipt  of  these  notices. 

The  detailed  report  retained  by  the  examiner  is  not 
submitted  to  the  clearing-house  committee,  under  whose 
direct  supervision  he  operates,  unless  the  discovery  of 
unusual  conditions  makes  it  necessary.  A  special  report 
in  brief  form  is  prepared  in  every  case  and  read  to  the 
clearing-house  committee  at  meetings  called  for  that  pur- 
pose. The  report  is  made  in  letter  form,  and  describes  in 
general  terms  the  character  of  the  examined  bank's  assets, 
points  out  all  loans,  direct  or  indirect,  to  officers,  directors, 
or  employees,  or  to  corporations  in  which  they  may  have 
an  interest.  It  further  describes  all  excessive  and  impor- 
tant loans,  calls  attention  to  any  unwarranted  conditions, 
gross  irregularities,  or  dangerous  tendencies,  should  any 
such  exist,  and  expresses,  in  a  general  way,  the  examiner's 
opinion  of  each  bank  as  he  finds  it. 

lycss  than  a  year  after  the  Chicago  Clearing  House  As- 
sociation appointed  its  special  examiner  the  associated 
banks  of  Minneapolis  took  similar  action.  The  conditions 
under  which  the  Minneapolis  examiner  operates  are  sub- 
stantially the  same  as  those  governing  the  examiner  at 
Chicago,  the  principal  difference  being  that  instead  of  the 
examiner  sending  a  copy  of  his  report  to  the  president  of 


140 


Clearing-House      Methods 

the  examined  bank  and  notifying  each  of  the  directors  of 
such  bank  that  he  has  made  such  examination  and  that 
the  report  is  in  the  hands  of  the  president  of  the  institution, 
as  is  the  rule  of  procedure  at  Chicago,  and  which,  in  a 
measure,  leaves  it  to  the  discretion  of  the  directors  whether 
they  examine  the  report  carefully  and  in  detail,  the  original 
report  is  delivered  by  the  examiner  at  Minneapolis  in  per- 
son to  the  board  of  directors  of  each  bank  which  he  exam- 
ines, at  a  meeting  convened  for  that  purpose.  The  report 
is  read  and  the  criticisms,  if  any,  are  fully  discussed,  and* 
the  recommendations  considered.  In  this  way  no  director 
can  complain  that  he  had  not  sufficient  opportunity  to  be- 
come fully  conversant  with  all  the  details  of  his  bank. 

This  action  was  taken  by  the  Minneapolis  banks  on 
February  i,  1907,  and  on  May  i,  1908,  fifteen  months 
later,  the  associated  banks  of  St.  Paul,  recognizing  the 
utility  and  value  of  the  plan,  joined  with  the  Minneapolis 
association  in  the  arrangement  for  clearing-house  examina- 
tions, and  another  assistant  examiner  was  appointed. 
Examinations  extend  to  all  national,  state,  and  savings 
banks  and  trust  companies  within  the  Twin  Cities,  to  the 
number  of  38  institutions,  and  the  examiner  visits  each 
institution  at  least  twice  a  year. 

At  a  meeting  of  the  St.  Louis  Clearing  House  Associa- 
tion held  on  October  11,  1907,  the  committee  of  manage- 
ment was  authorized  to  devise  regulations  looking  to  the 
appointment  of  a  clearing-house  bank  examiner,  together 
with  such  assistants  as  he  might  require.  The  panic  of 
that  year,  however,  intervened,  and  the  appointment  of 
the  examiner  was  deferred  until  February  i,  1908,  and  he 


141 


National    Monetary     Commission 

commenced  his  work  with  two  capable  assistants  and  a 
stenographer  on  March  15  of  that  year. 

A  detailed  report  is  prepared  in  duplicate  of  the  condi- 
tion of  each  bank  examined,  as  at  Chicago,  setting  forth 
a  description  of  the  bank's  assets,  including  all  loans, 
direct  or  indirect,  to  officers,  directors,  or  employees  of  the 
bank,  or  to  corporations  in  which  they  may  have  an  interest 
and  the  nature  and  value  of  the  collateral  held  to  secure  the 
same.  The  reports  further  detail  all  loans  in  excess  of  the 
legal  limit,  all  loans  upon  which  j:he  margins  are  deemed 
insufficient,  all  past-due  paper,  and  an  estimate  of  the 
probable  loss,  if  any  is  apparent,  on  all  the  bank's  invest- 
ments. The  reports  also  include  the  condition  of  the 
bank's  reserve  on  the  date  of  examination  and  the  gen- 
eral condition  of  the  same  for  the  thirty  days  immediately 
preceding. 

The  banks  are  required  to  have  a  statement  of  their 
accounts  with  correspondent  banks  at  the  close  of  busi- 
ness on  the  day  of  examination,  mailed  direct  to  the  ex- 
aminer, and  these  statements  are  reconciled  with  the 
books  of  the  bank.  Should  errors  or  discrepancies  be 
discovered,  they,  too,  are  made  a  matter  of  special  com- 
ment in  the  report.  All  resource  accounts  are  verified 
by  an  examination  of  the  actual  security,  or  by  corre- 
spondence, and  all  liabilities  as  shown  by  the  supple- 
mental books  of  the  bank  are  listed  and  compared  with 
the  general  ledger. 

The  examiner  may  insist,  if,  in  his  judgment,  the  con- 
ditions warrant  it,  upon  receiving  a  detailed  reply  signed 
by  all  the  directors  of  the  bank,  regarding  matters  com- 


142 


Clearing-House      Methods 

plained  of  in  his  report,  and  a  statement  from  them  as  to 
what  steps  will  be  taken  to  correct  the  same. 

None  of  the  details  of  the  report  are  presented  to  the 
committee  of  management,  unless,  in  the  discretion  of 
the  examiner,  the  facts  are  such  as  to  require  their  atten- 
tion. When,  however,  a  state  of  affairs  exists  which  is 
not  in  harmony  with  sound  banking,  or  any  infringement 
of  federal  or  state  laws  is  discovered,  the  regulations  pro- 
vide that  the  report  shall  be  submitted  to  said  committee, 
and,  after  due  consideration  by  that  body,  the  officers 
and  directors  of  the  bank  under  criticism  shall  be  brought 
before  the  committee  and  given  a  hearing.  If  the  con- 
ditions are  not  corrected  and  a  satisfactory  adjustment 
made,  the  bank  shall  be  denied  the  privileges  of  the  clear- 
ing house. 

The  committee  of  management  of  the  St.  Louis  Clear- 
ing House  Association  evidently  realized  the  danger  of 
having  one  man  so  fully  conversant  with  the  affairs  of  all 
the  banks,  as  was  certain  to  be  the  case  with  an  examiner 
of  this  character,  and  the  temptation  it  might  be  to  any 
bank  to  endeavor  to  secure  the  services  of  a  man  who 
possessed  such  an  intimate  knowledge  of  the  affairs  of  its 
competitors,  and  provided  against  such  a  contingency  by 
contracting  with  him,  and  also,  with  his  assistants,  not 
to  accept  any  position  in  any  financial  institution  within 
a  radius  of  300  miles  of  St.  Louis,  within  a  period  of 
three  years  after  severing  their  connection  with  the  clear- 
ing house,  unless  such  connection  should  be  made  with  the 
knowledge  and  consent  of  the  committee  of  management. 


143 


National    Monetary     Commission 

The  clearing-house  associations  of  Los  Angeles  and  San 
Francisco  have  each  provided  for  examinations  of  their 
respective  members  by  special  examiners  appointed  by 
the  clearing  house.  The  plan  upon  which  these  examiners 
operate  is  modeled  closely  upon  the  St.  Louis  idea,  so  that 
it  would  be  ambiguous  to  discuss  them  in  detail.  Suffice 
it  to  say  that  they  have  been  operative  for  a  sufficient 
length  of  time  to  be  well  tried  out,  and  that  no  dissatisfac- 
tion has  become  apparent. 

In  the  early  part  of  1908  the  associated  banks  of  Kan- 
sas City  took  under  advisement  the  matter  of  securing 
the  services  of  a  special  examiner  to  be  in  the  employ  of 
the  clearing  house,  and  in  March  of  that  year  entered  into 
a  contract  with  one  of  the  members  of  a  firm  of  certified 
public  accountants  of  that  city  to  do  the  work. 

In  all  essential  details  the  operations  of  the  examiner 
are  along  the  same  lines  as  are  those  of  other  cities.  One 
striking  feature  of  the  plan  is  the  maintenance  by  the 
examiner  of  a  credit  record  by  card-index  system,  and  in 
other  ways,  whereby  memoranda  are  kept  of  the  borrow- 
ings of  all  country  banks  and  large  individual  firm  and 
corporation  borrowers,  together  with  certain  credit  infor- 
mation, all  of  which  is  at  the  service  of  any  member  of  the 
clearing  house.  Information  as  to  the  identity  of  the 
bank  from  which  the  borrowings  have  been  made  is  never 
given,  but  a  debtor's  total  borrowings  and  all  other 
information,  gathered  from  time  to  time  by  the  examiner, 
are  at  the  service  of  any  bank  which  indicates  a  desire  to 
have  it. 


144 


Clearing-House      Methods 

The  St.  Joseph  Clearing  House  Association,  in  the  early 
part  of  the  present  year,  also  entered  into  a  contract  with  a 
prominent  firm  of  certified  public  accountants  to  make 
examinations  of  its  various  affiliated  institutions  under 
constitutional  provision.  The  plan  contemplates  but  one 
examination  of  each  institution  a  year,  and  much  general 
satisfaction  has  been  expressed  with  the  examinations 
made  thus  far. 

The  first  and  only  association  in  the  East  to  take  this 
important  step  was  that  of  Philadelphia.  That  the  recent 
panic  strongly  impressed  certain  bankers  of  that  city  who 
served  on  the  clearing-house  committee  during  that  trying 
period,  with  the  idea  that  they  had  assumed  an  enormous 
responsibility  in  extending  credit  to  the  various  members 
of  the  association  without  even  the  knowledge  that  their 
condition  was  satisfactory,  is  undoubtedly  responsible  for 
the  unanimous  action  taken  by  the  association  on  April  5, 
1909,  providing  for  the  appointment  of  a  clearing-house 
examiner.  The  plan  under  which  the  examiner  operates 
is  the  result  of  a  study  of  all  the  systems  and  methods 
pursued  in  the  West,  and  the  best  features  of  each  have 
been  adapted  to  their  purposes.  Having  been  thus  formu- 
lated it  is  unnecessary  to  discuss  the  details,  which  would 
be  a  duplication  of  certain  features  of  each  of  the  other 
plans  touched  upon.  In  this  instance,  however,  the 
examiner  was  obliged  to  enter  into  an  agreement  with 
the  clearing-house  committee  not  to  enter  the  employ  of 
any  member  or  nonmember  of  the  association,  or  any  other 
bank,  banking  institution,  firm,  or  individual  engaged  in  the 


145 


National    Monetary     Commission 

business  of  banking  in  the  city  of  Philadelphia,  or  within 
a  radius  of  250  miles  thereof,  for  a  period  of  five  years  after 
the  expiration  of  his  services  with  the  association,  which, 
as  will  be  seen,  precludes  his  acceptance  of  a  position  w^ith 
a  bank  in  the  city  of  New  York.  The  restriction  as  to  the 
length  of  time  during  which  he  may  not  engage  in  the 
banking  business  within  the  prescribed  radius  is  two  years 
longer  than  that  required  by  the  association  at  St.  Louis. 
Prior  to  July  i,  1909,  the  banking  laws  of  California 
did  not  provide  for  any  state  supervision  by  examination 
of  its  banks;  and  the  bankers  of  that  State,  realizing  that 
public  opinion  was  gradually  tending  toward  a  demand 
for  better  supervision  of  banking  institutions  all  over  the 
country,  and  acting  on  a  practical  suggestion  made  by  a 
visiting  banker  at  one  of  the  group  meetings  of  the  Cali- 
fornia Bankers'  Association,  started  a  movement  which 
had  for  its  purpose  the  formation  of  clearing-house  asso- 
ciations for  each  of  the  state  groups,  each  with  proper 
officers  and  a  local  examiner.  The  laudable  object  of 
this  California  plan  was  "to  improve  and  strengthen  the 
banking  system  of  the  State;  to  prevent  improper  and 
unsafe  conduct  upon  the  part  of  officers  or  directors  of 
any  bank  within  the  State ;  to  provide  a  system  of  thorough 
and  competent  examination  into  the  affairs  of  every  bank 
belonging  to  this  association  by  expert  examiners ;  and, 
generally,  to  safeguard  the  common  interests  of  the 
banks  and  the  public."  All  banks  were  eligible  to  mem- 
bership, but  under  the  plan  no  bank  could  withdraw 
unless  in  good  condition,  and  the  associations  had  power 
to  expel  any  member,  notice  of  such  expulsion  to  be  sent 


146 


Clearing-House      Methods 

to  the  national  or  state  banking  department,  and  to  each 
and  every  member  of  the  association.  The  plan  contem- 
plated the  division  of  the  State  into  eleven  districts,  the 
clearing-house  association  of  San  Francisco  being  No.  i , 
that  of  Los  Angeles  No.  2,  and  so  on. 

The  plan  was  perfected,  and  nothing  remained  but  to 
set  it  in  motion,  when  the  California  legislature  passed  a 
new  banking  law,  based  upon  that  of  New  York,  which 
provided  for  the  appointment  of  a  competent  superin- 
tendent of  banks,  with  a  liberal  allowance  for  the  expenses 
of  the  office.  The  new  superintendent  commenced  his 
duties  on  July  i  of  the  present  year,  and  pending  an 
opportunity  to  observe  the  character,  efficiency,  and 
results  of  his  work  the  group  plan  of  examinations  has 
been  abandoned. 

The  subject  of  the  appointment  of  a  bank  examiner  has 
been  discussed  by  the  associated  banks  of  New  York  on 
one  or  two  occasions,  but  sufficient  opposition  has  each 
time  developed  to  make  it  impossible  of  accomplishment. 


147 


Chapter  XIII. 

THE  NEW  YORK  CLEARING  HOUSE. 

ORIGIN  AND  EARI^Y  HISTORY — FORMAL  ORGANIZATION  IN 
1853 — FIRST  LOCATION — NEW  YORK  CLEARING-HOUSE 
BUILDING  COMPANY — CEDAR  STREET  PROPERTY — CON- 
STITUTIONAL PROVISIONS — COMMITTEES — STATISTICS  OF 
MEMBERSHIP — CLEARING  FOR  NONMEMBERS — STATE- 
MENTS OF  CONDITION— CAPITALIZATION  OF  NEW  YORK 
BANKS RECORDS    OF    CLEARING    HOUSE. 

Notwithstanding  the  magnitude  of  the  transactions 
at  the  New  York  clearing  house,  and  the  important  part 
that  it  plays  in  banking  economy,  very  little  is  known 
about  it  outside  of  banking  circles.  The  business  com- 
munity is  not  familiar  with  its  functions,  and  the  public 
in  general  knows  very  little  of  its  operations.  While  the 
exchanges  are  enormous,  the  method  is  simple  and  easy 
to  comprehend.  It  is  the  purpose  of  this  chapter,  there- 
fore, to  inquire  into  its  origin  and  trace  its  growth  and  con- 
stitutional development.  To  the  end  that  the  reader  may 
be  the  more  fully  prepared  to  comprehend  its  true  signifi- 
cance it  is  necessary,  by  way  of  introduction,  to  pass  in 
review  the  methods  of  exchange  employed  by  the  New 
York  banks  prior  to  its  establishment. 

During  a  comparatively  short  period  immediately  fol- 
lowing 1849  the  number  of  banks  in  New  York  increased 
from  24  to  60.  In  the  daily  course  of  business  each  bank 
received  checks  and  other  items  on  each  of  the  other  banks, 


148 


Clearing-House      Methods 

which  had  to  be  presented  for  collection.  All  such  items 
on  hand  were  assorted  and  Hsted  on  separate  slips  at  the 
close  of  the  day,  and  items  coming  in  through  the  mail  on 
the  following  morning  were  added  at  that  time.  To  make 
the  daily  exchanges  each  bank  sent  out  a  porter  with  a 
book  of  entry,  or  pass  book,  together  with  the  items  to  be 
exchanged. 

The  receiving  teller  of  the  first  bank  visited  entered  the 
exchanges  brought  by  the  porter  on  the  credit  side  of  his 
book  and  the  return  exchanges  on  the  debit  side,  who  then 
hurried  away  to  deliver  and  receive  in  like  manner  at  the 
other  banks.  It  often  happened  that  five  or  six  porters 
would  meet  at  the  same  bank,  thereby  retarding  one 
another's  progress  and  causing  much  delay.  Considerable 
time  was  consumed  in  making  the  circuit.  Hence,  the 
entry  of  the  return  items  in  the  books  of  the  several  banks 
was  delayed  until  the  afternoon,  at  an  hour  when  the  other 
work  of  the  bank  was  becoming  urgent. 

A  daily  settlement  of  the  balances  was  not  attempted 
by  the  banks,  owing  to  the  time  it  would  have  required, 
but  they  informally  agreed  upon  a  weekly  adjustment,  the 
same  to  take  place  after  the  exchanges  on  Friday  morn- 
ing. At  that  time  the  cashier  of  each  bank  drew  a  check 
for  each  of  the  several  balances  due  it,  and  sent  a  porter 
out  to  collect  them.  At  the  same  time  the  porter  carried 
coin  with  which  to  pay  balances  due  by  his  bank.  After 
the  settlement  had  been  made,  there  was  a  meeting  to 
adjust  differences  and  bring  order  out  of  chaos. 

An  old  bank  ofiicer  (J.  S.  Gibbons),  in  describing  the 
inconveniences  and  defects  of  this  system,  says  that  some 


149 


National    Monetary     Commission 

of  the  more  speculative  banks  took  advantage  of  the 
weekly  method  of  settlements  by  carrying  a  line  of  dis- 
counts to  an  amount  greater  than  their  legitimate  resources 
would  allow.  Thus,  a  bank  would  manage  to  carry  a  small 
debit  balance  of  $2,000  or  $3,000  with  thirty  or  more 
institutions,  making  a  total  debit  balance  of,  say,  $100,000 
on  which  it  discounted  paper.  It  was  the  practice  to  bor- 
row enough  on  Thursday  to  make  the  settlements  on 
Friday,  and  the  return  of  the  loan  on  Saturday  threw  it 
again  into  the  debtor  column.  Virtually,  therefore,  the 
weekly  settlements  were  nominal  only,  and  to  show  that 
there  was  no  attempt  at  economy  of  time  and  labor  in 
making  them,  it  is  only  necessary  to  say  that  the  cashier 
drew  a  check  for  every  balance  due  him,  whereas  a  draft 
on  one  bank  in  favor  of  another  might  have  settled  two 
accounts  at  once. 

The  banks  were  at  liberty  to  draw  on  each  other  for 
their  credit  balances  without  waiting  for  the  settlements 
on  Friday,  and  hence,  when  specie  was  needed,  this  was 
not  infrequently  done.  But  so  far  did  many  of  the  banks 
extend  their  loans  and  discounts  that  a  single  small  draft 
by  one  bank  on  another  would  induce  a  general  drawing 
and  involve  them  all  in  confusion  and  virtual  war  on  each 
other.  Three  o'clock  would  arrive,  with  the  line  of  drafts 
incomplete,  thus  enabling  debtor  banks  ofttimes  to  add 
$50,000  to  their  specie,  whereas  creditor  banks  would 
find  themselves  at  the  close  of  the  day  depleted  in  per- 
haps twice  that  sum. 

The  desirability  of  a  substitute  for  such  a  system  had 
long  been  realized,  but  as  yet  no  plausible  scheme  had 


150 


Clearing-House      Methods 

been  proposed.  As  early  as  1831  a  plan  had  been  sug- 
gested by  Albert  Gallatin,  which,  to  a  very  remarkable 
degree,  coincided  with  the  one  ultimately  adopted.  His 
proposition  occurs  in  a  pamphlet  of  124  pages,  entitled 
"Suggestions  on  the  Banks  and  Currency  of  the  Several 
United  States  in  Reference  Principally  to  the  Suspension 
of  Specie  Payments,"  and  is  so  significant  that  we  quote 
it  in  part: 

There  is  a  measure  which,  though  belonging  to  the  administration  of 
banks,  ratlier  than  to  legal  enactments,  is  suggested  on  account  of  its 
great  importance.  Few  regulations  would  be  more  useful  in  preventing 
dangerous  expansions  of  discounts  and  issues  on  the  part  of  the  city  banks 
than  a  regular  exchange  of  notes  and  checks  and  an  actual  daily  or  semi- 
weekly  payment  of  the  balances.  It  must  be  recollected  that  it  is  by  this 
process  alone  that  a  bank  of  the  United  States  has  ever  acted  or  been 
supposed  to  act  as  a  regulator  of  the  currency.  Its  action  would  not  in 
that  respect  be  wanted  in  any  city  the  banks  of  which  would,  by  adopt- 
ing the  process,  regulate  themselves.  It  is  one  of  the  principal  ingredients 
of  the  system  of  the  banks  of  Scotland.  The  bankers  of  London,  by  the 
daily  exchange  of  drafts  at  the  clearing  house,  reduce  the  ultimate  balance 
to  a  very  small  sum;  and  that  balance  is  immediately  paid  in  notes  of  the 
Bank  of  England.  The  want  of  a  similar  arrangement  among  the  banks 
of  this  city  produces  relaxation,  favors  improper  expansions,  and  is  at- 
tended with  serious  inconveniences.  The  principal  difficulty  in  the  way 
of  an  arrangement  for  that  purpose  is  the  want  of  a  common  medium  other 
than  specie  for  effecting  the  payment  of  balances.  Those  are  daily  fluc- 
tuating; and  a  perpetual  drawing  and  redrawing  of  specie  from  and  into 
the  banks  is  unpopular  and  inconvenient. 

In  order  to  remedy  this,  it  has  been  suggested  that  a  general  cash  office 
might  be  established,  in  which  each  bank  should  place  a  sum  in  specie, 
proportionate  to  its  capital,  which  would  be  carried  to  its  credit  in  the 
books  of  the  office.  Each  bank  would  be  daily  debited  or  credited  in  those 
books  for  the  balance  of  its  account  with  all  the  other  banks.  Each  bank 
might  at  any  time  draw  for  specie  on  the  office  for  the  excess  of  its  credit 
beyond  its  quota;  and  each  bank  should  be  obliged  to  replenish  its  quota, 
whenever  it  was  diminished  one-half  or  in  any  other  proportion  agreed  on. 

It  may  be  that  some  similar  arrangement  might  be  made  in  every  other 
county  or  larger  convenient  district  of  the  State.  It  would  not  be  nec- 
essary to  establish  then  a  general  cash  office.  Each  of  the  banks  of  Scot- 
land has  an  agent  at  Edinburgh,  and  the  balances  are  there  settled  twice 


151 


National    Monetary     Commission 

a  week,  and  paid  generally  by  drafts  on  London.  In  the  same  manner 
the  balances  due  by  the  banks  in  each  district  might  be  paid  by  drafts 
on  New  York  or  any  other  place  agreed  on. 

These  extracts  contain  the  very  quintessence  of  the 
clearing-house  system.  A  regulation  "belonging  to  the 
administration  of  banks  rather  than  to  legal  enact- 
ments "  comprehends  the  clearing  house  constituted  as  a 
private  and  voluntary  association,  unchartered,  and  in 
fact  unknown  to  the  law.  The  remedy  for  the  "danger- 
ous expansions  of  discounts  and  issues "  and  for  the 
"relaxation  and  serious  inconveniences"  is  afforded  by 
the  very  system  which  he  proposed;  and  the  "want  of 
a  common  medium  other  than  specie  for  effecting  the 
payment  of  balances, ' '  which  was  the  ' '  principal  diffi- 
culty in  the  way  of  an  arrangement  for  that  purpose," 
strikingly  suggests  the  clearing-house  gold  coin  and  legal- 
tender  certificates  in  use  at  the  present  day.  The  problem 
of  the  "unpopular  and  inconvenient  system  of  drawing 
and  redrawing  specie  from  and  into  the  banks"  has  met 
its  solution  in  the  clearing  house,  and  the  "general  cash 
office,  in  which  each  bank  should  place  a  sum  in  specie," 
is  represented  in  the  present  coin  depository. 

The  proposition  that  the  specie  deposited  by  each 
bank  should  "be  carried  to  its  credit  in  the  books  of  the 
office"  savors  of  the  London  rather  than  of  the  Ameri- 
can plan.  The  extension  of  the  clearing-house  system 
is  a  partial  fulfillment  of  the  remark  that  "some  similar 
arrangement  might  be  made  in  every  other  county  or 
larger  convenient  district  of  the  State,"  and  the  absence 
of  the  coin  depository  in  the  smaller  cities  is  in  keeping 
with  the  idea  that  "it  would  not  be  necessary  to  estab- 


152 


Clearing-House      Methods 

lish  a  general  cash  office  in  such  places."  The  payment 
of  balances  in  most  of  the  smaller  clearing  houses,  by 
drafts  on  New  York  and  other  large  centers,  is  a  re- 
markable confirmation  of  the  idea  that  "balances  due 
by  the  banks  in  each  district  might  be  paid  by  drafts 
on  New  York  or  any  other  place  agreed  on." 

But  the  times  were  not  ripe  for  the  scheme  thus  pro- 
posed. Mr.  Gallatin  was  thinking  in  advance  of  the  age. 
More  than  twenty  years  passed  by  before  his  fellow- 
bankers  could  appreciate  the  wisdom  of  his  suggestions. 
In  time,  however,  the  question  began  to  be  more  gen- 
erally discussed.  For  nearly  a  year  it  was  under  con- 
sideration, and  finally  it  was  deemed  advisable  to  call  a 
meeting  to  take  decisive  action  upon  it. 

On  August  23,  1853,  16  presidents,  i  vice-president, 
and  21  cashiers,  representing  38  banks,  assembled  in  the 
directors'  room  of  the  Merchants'  Bank,  and  at  this 
meeting  a  resolution  was  passed  providing  that  "a 
committee  be  appointed  to  procure  or  hire  a  suitable 
room  in  or  near  Wall  street,  for  the  purpose  of  holding 
meetings  of  the  officers  of  the  city  banks;  that  the  said 
committee  be  requested  to  submit  a  plan,  at  an  adjourned 
meeting  of  this  body,  to  simplify  the  system  of  making 
exchanges  and  settling  the  daily  balances;  and  that 
when  a  room  is  procured  or  hired  for  the  above  pur- 
pose, the  president  or  cashiers  be  requested  to  meet 
weekly  until  a  plan  is  agreed  upon."  In  compliance 
with  this  request,  the  committee  presented  a  plan  for 
the  daily  settlement  of  balances,  at  a  meeting  held  on 
August  31,  1853,  which  plan  was  amended  so  as  to  pro- 

20040 — 10 II  153 


National    Monetary     Commission 

vide  "that  a  room  be  procured  for  that  purpose,  suffi- 
ciently   large    to    afford    suitable    accommodations." 

On  September  13,  1853,  the  scheme  was  adopted 
and  the  committee  was  "clothed  with  full  power  to 
hire  a  room,  appoint  a  manager  and  clerks,  and  make 
all  the  necessary  arrangements  to  carry  the  plan  for 
a  clearing  house  into  effect."  On  October  4  the  date 
for  beginning  operations  was  fixed  for  October  1 1 . 
Accordingly,  on  the  appointed  day,  the  representatives 
of  the  banks,  members  of  the  association,  met  in  a  room 
which  had  been  procured  in  the  basement  at  No.  14 
Wall  street,  and  made  the  first  exchanges.  The  total 
clearings  on  that  day  were  $22,648,109.87,  and  the 
balances  were  $1,290,572.38.  These  clearings  have  since 
been  eclipsed  by  over  $30,000,000  in  the  totals  of  a  single 
bank. 

The  clearing  system  in  America  was  thus  fairly 
launched,  and  from  that  time  forth  its  success  exceeded 
the  expectations  of  even  its  most  ardent  projectors. 
The  association  consisted  at  that  time  of  52  banks, 
banded  together  for  their  common  good,  which,  as  they 
then  conceived,  consisted  solely  in  the  exchange  of  items 
and  settlement  of  balances  at  a  uniform  time  and  place. 
For  nearly  a  year  the  operations  were  conducted  with- 
out a  constitution.  The  adoption  of  such  an  instrument 
was  opposed,  on  the  groimd  that  it  was  not  needed  and 
might  lead  to  a  dangerous  concentration  of  power  in 
the  hands  of  a  few  managers,  who  might  use  it  for  per- 
sonal aggrandizement,  or  for  the  exercise  of  an  arbi- 
trary supervision.     But  the  need  of  fixed  rules  of  some 


154 


Clearing-House      Methods 

sort  for  their  guidance  became  more  and  more  urgent, 
and  on  February  28,  1854,  one  of  the  bank  officers 
"recommended  that  an  act  of  incorporation  be  obtained 
for  the  clearing  house,  or  that  some  other  form  of  or- 
ganization be  adopted,  with  a  constitution  and  laws 
for  its  government,  providing  for  regular  meetings  of 
bank  officers." 

A  constitution  was  drafted  by  George  Curtis,  and 
upon  June  6,  1854,  it  was  adopted  and  ordered  sent 
to  the  several  banks  for  their  action.  Upon  August 
I  it  was  signed  by  each  of  the  members  and  thereby 
put  into  full  force  and  operation.  This  instrument, 
with  the  changes  that  have  been  made  from  time  to 
time  by  the  adoption  of  amendments  and  resolutions, 
is  in  force  at  the  present  day. 

The  subject  of  proper  accommodations  for  the  trans- 
actions of  the  clearing  house  was  frequently  considered. 
As  already  shown,  the  original  location  was  fixed  at 
No.  14  Wall  street,  but  the  quarters  were  not  entirely 
suitable,  and  hence,  on  May  i,  1854,  the  seat  of  oper- 
ations was  transferred  to  No.  82  Broadway.  At  a 
meeting  held  in  May,  1857,  a  committee  was  appointed 
to  consider  the  subject  of  removal  from  that  locality. 
One  month  later  the  committee  reported  in  favor  of 
occupying  a  room  in  the  building  of  the  Bank  of  New 
York,  at  No.  48  Wall  street,  and  their  report  was  adopted. 
In  March,  1858,  the  association  first  met  in  the  new 
rooms.  At  a  meeting  held  five  years  thereafter,  the 
question  of  removing  to  a  more  central  location  was  dis- 
cussed, but  it  was  voted  to  be  inexpedient  to  consider 
the  subject  of  removal  at   that  time. 

155 


National    Monetary     Commission 

At  a  meeting  on  the  24th  of  June,  1868,  a  committee 
was  appointed  to  select  suitable  rooms  for  the  use  of 
the  clearing  house  and  meetings  of  bank  officers;  and 
the  chairman  of  the  committee,  in  his  report  to  the 
association  on  October  15,  1869,  stated  that  they  "had 
been  unable  to  find  such  rooms;  but  that  the  building 
then  being  erected  by  the  Equitable  Life  Insurance 
Company,  on  Broadway,  corner  of  Cedar  street,  had 
been  under  consideration,  but  it  was  found  that  suffi- 
cient and  suitable  room  could  not  be  had  in  that  build- 
ing, and  recommended  that  the  association  purchase 
a  building  and  fit  it  up  to  meet  the  wants  of  the  clear- 
ing house  and  the  banks."  At  a  subsequent  meeting 
the  committee  was  requested  by  resolution  to  renew 
their  efforts  to  procure  suitable  rooms.  Meanwhile 
the  association  had  been  accumulating  a  building  fund, 
which  by  October,   1874,  amounted  to  over  $90,000. 

Some  time  expired  before  an  opportunity  offered  for 
the  purchase  of  available  property.  Finally,  the  National 
Bank  of  the  Commonwealth  Building,  on  the  corner  of 
Nassau  and  Pine  streets,  was  advertised  to  be  sold  at  pub- 
lic auction  on  October  13,  1874,  and  the  committee  was 
instructed  by  a  vote  of  41  to  5  to  purchase  it  at  any  price 
that  was  satisfactory  to  it.  Accordingly,  the  committee 
attended  the  sale  and  purchased  the  property  for  $215,000. 

In  payment  of  this  sum,  $75,000  was  borrowed  on  the 
securities  in  the  hands  of  the  committee,  and  for  the  re- 
maining cost  and  contemplated  improvements  in  the  build- 
ing a  draft  was  made  upon  the  associated  banks,  at  the 
rate  of  twenty-two  one-hundredths  of  i  per  cent  on  their 


156 


Clearing-House      Methods 

respective  capitals.  In  return  therefor  each  bank  received 
a  certificate  from  the  trustees,  with  the  stipulated  agree- 
ment that  it  should  receive  thereafter  a  proper  considera- 
tion for  the  amount  advanced.  Subsequent  drafts  were 
made  upon  the  members,  in  proportion  to  their  capital,  as 
in  the  previous  instance,  for  the  purpose  of  defraying  the 
cost  of  improvements,  including  the  furniture  and  fixtures 
of  the  new  building.  The  drafts  in  total  amounted  to 
three-tenths  of  i  per  cent  of  the  respective  capitals  of  the 
banks.  In  return  for  the  amounts  so  advanced  certifi- 
cates were  given  as  before. 

The  bank  building  was  properly  altered  and  equipped 
for  the  transactions  of  the  clearing  house,  and  on  June  17, 
1875,  the  premises  were  occupied.  Here  the  clearing  house 
remained  for  the  next  twenty-one  years.  At  a  meeting  of 
the  association,  April  20,  1892,  the  attention  of  the  clear- 
ing-house com.mittee  was  called  to  the  probable  necessity 
of  securing  before  many  years  a  larger  and  more  commo- 
dious building  for  clearing-house  purposes.  As  the  result 
the  committee  was  instructed  to  consider  the  matter  and 
report.  The  same  committee,  in  conjunction  v/ith  the 
trustees,  was  authorized  at  a  meeting  on  December  29, 
1893,  to  acquire  for  use  of  the  association  the  property 
known  as  79  to  83  Cedar  street  and  to  sell  the  property  on 
the  corner  of  Pine  and  Nassau  streets. 

A  meeting  of  the  association  was  held  January  16,  1894, 
when  it  was  unanimously  resolved  "  that  the  clearing-house 
committee  be  authorized  to  organize  a  corporation  to  take 
title  to  the  property  just  purchased,  to  be  known  as  the 
New  York  Clearing  House  Building  Company;  to  draw 


157 


National    M o n  e t ar y     Commission 

upon  all  the  banks  represented,  in  proportion  to  their  re- 
spective capitals  and  surplus,  for  all  money  needed  to  pay 
for  the  said  property,  and  for  the  erection,  fitting  up,  and 
furnishing  of  a  building  thereon,  suitable  for  the  use  of 
the  association;  to  issue  to  each  of  the  banks  so  paying  a 
receipt  for  such  payment,  in  such  form  as  shall  be  approved 
by  counsel,  and  to  apply  the  money  so  received  to  the  pur- 
chase of  the  said  land,  and  to  supply  the  said  building  com- 
pany with  funds  to  defray  the  cost  of  the  erecting  and  fur- 
nishing of  the  said  building.  " 

A  form  of  receipt  was  adopted,  certifying  that  the  bank 
specified  therein  had  paid  to  the  clearing-house  association 
the  sum  named  toward  the  purchase  of  the  real  estate  in 
Cedar  street  for  the  use  of  the  banks,  members  of  the  asso- 
ciation, and  that  the  said  bank  is  entitled  to  interest  upon 
the  said  amount  at  the  rate  of  5  per  cent,  and  further  pro- 
viding that  the  bank  shall  not  transfer  the  certificate  while 
a  member  of  the  association;  and  if  it  shall  at  any  time 
cease  to  be  a  member,  then  the  association  shall  have  a  prior 
right  to  purchase  the  certificate  at  a  price  not  exceeding  the 
amount  named  and  interest. 

The  Cedar  street  property  was  duly  bought  and  the 
corporation  organized  to  take  the  title.  The  capital  stock 
of  the  corporation  was  fixed  at  $900,000.  For  this  9,000 
shares  were  issued — 8,975  in  the  name  of  the  president  of 
the  clearing-house  association  and  25  in  the  name  of  the 
5  directors  of  the  Clearing  House  Building  Company,  who 
held  the  same  in  trust.  The  banks  paid  to  the  clearing- 
house committee  the  full  amount  of  the  shares,  for  which, 
in  turn,  they  received  the  certificates.     In  addition,  the 


158 


C  I  e  a  r  i  n  g  -  H  0  u  s  e      Methods 

sum  of  $230,000  was  collected  from  the  members  as  a  final 
assessment  for  the  erection  of  the  new  building,  and  for 
this  amount  certificates  were  issued  in  due  form,  and  these, 
with  the  $900,000  previously  issued,  made  $1,130,000  of 
certificates  outstanding.  The  final  report  of  the  commit- 
tee showed  that  the  cost  of  the  building  was  $1,099,569.72. 

The  new  building,  two  views  of  which  are  given  here- 
with, in  which  the  association  took  up  its  abode  in  the 
middle  of  January,  1896,  is  built  of  white  marble,  in  the 
Italian  renaissance  style.  It  is  an  adornment  to  the  city 
and  is  one  of  the  architectural  gems  of  the  world. 

Thus  we  have  seen  that  the  association  occupied  four 
different  locations  before  coming  into  the  structure  erected 
for  its  own  use;  and  that  after  each  removal  it  remained 
longer  than  it  had  in  the  quarters  just  abandoned. 

The  constitution  of  the  New  York  clearing  house  pro- 
vides in  full  for  the  regulation  of  the  affairs  of  the  associa- 
tion and  for  the  guidance  of  its  members.  A  general 
meeting  is  held  annually,  and  special  meetings  may  be 
called  by  the  clearing-house  committee  whenever  it  may 
deem  it  necessary,  or  whenever  it  is  requested  to  do  so  by 
any  seven  of  the  associated  banks.  A  majority  of  the 
whole  number  of  associated  banks  constitutes  a  quorum. 
Each  bank  may  be  represented  at  all  meetings  of  the  asso- 
ciation, and  is  entitled  to  one  vote. 

The  administration  of  the  clearing  house  is  vested  in  a 
president,  secretary,  manager,  assistant  manager,  and 
five  standing  committees. 

The  president  is  elected  by  ballot  at  the  annual  meet- 
ing, to  preside  at  that  meeting  and  all  subsequent  meet- 


159 


National    M  o  7t  e  t  ar  y     Commission 

ings  during  the  year.  He  is  ex  officio  member  of  all  com- 
mittees except  the  committee  on  nominations.  In  his 
absence  a  chairman  pro  tempore  is  appointed. 

The  secretary  is  elected  at  the  same  meeting,  and  it  is 
his  duty  to  record  the  minutes  of  each  meeting  of  the  asso- 
ciation. 

The  manager,  under  the  control  of  the  clearing-house 
committee,  has  full  charge  of  all  business  at  the  clearing 
house,  but  before  entering  upon  his  duties  he  is  required 
to  give  bond  in  the  sum  of  $10,000.  The  clerks  of  the 
establishment,  as  well  as  the  settling  clerks  and  porters 
of  the  several  associated  banks,  while  at  the  clearing  house, 
are  under  his  direction.  He  superintends  the  operation 
of  clearing,  the  adjustment  and  settlement  of  balances, 
the  keeping  of  the  records  of  transactions  as  they  take 
place  from  day  to  day,  the  preparation  and  publication  of 
the  weekly  bank  statements,  and,  in  a  word,  attends  to  all 
the  detail  work  of  the  clearing  house.  He  imposes  and 
collects  fines  from  the  members  for  the  violation  of  clear- 
ing-house rules  and  acts  as  secretary  of  all  the  committees 
when  they  meet  at  the  clearing  house. 

Although  the  constitution  provides  for  the  appointment 
of  a  manager  annually,  it  is  the  custom  to  retain  the  same 
one  in  office  year  after  year.  As  a  fact,  there  have  been 
only  three  managers  in  the  whole  history  of  the  associa- 
tion. The  first,  George  D.  Lyman,  served  until  1864, 
when  he  was  succeeded  by  William  A.  Camp,  who,  after 
a  long  and  honorable  career  of  twenty-eight  years  as 
manager,  resigned  in  1892,  and  William  Sherer,  who  had 
been  assistant  manager,  was  appointed  to  succeed  him. 
The  present  assistant  manager  is  William  J.  Gilpin. 

160 


Clearing-House      Methods 

The  various  committees  of  the  clearing  house  embrace 
the  clearing-house  committee,  the  conference  committee, 
the  committee  on  admissions,  the  nominating  committee, 
and  the  arbitration  committee.  Each  committee  consists 
of  five  members.  The  first  three  committees  were  pro- 
vided for  in  the  constitution  originally  adopted.  The 
committee  on  arbitration  was  proposed  in  an  amendment 
January  ii,  1855,  by  George  Curtis,  who  drafted  the  con- 
stitution. This  amendment  was  subsequently  adopted. 
On  September  22,  1871,  the  nominating  committee  was 
created  by  resolution.  Besides  these,  a  loan  committee 
has  been  appointed  on  special  occasions,  whose  functions 
are  described  in  the  chapter  on  clearing-house  loan  certifi- 
cates. 

The  clearing-house  committee  is  clothed  with  almost 
absolute  power,  being  second  in  authority  only  to  the  asso- 
ciation itself.  The  ablest  and  most  experienced  bank 
officers,  therefore,  are  usually  chosen  to  serve  on  it.  The 
committee  is  elected  annually,  and  is  charged  with  the 
responsibility  of  equipping  the  clearing  house  with  furni- 
ture, providing  fuel,  stationery,  and  whatever  else  is  neces- 
sary for  the  convenient  transaction  of  its  business,  of  ap- 
pointing a  manager  and  his  subordinates,  of  establishing 
rules  and  regulations  to  be  observed  at  the  clearing  house 
not  provided  for  in  the  constitution,  always,  however, 
subject  to  the  approval  of  the  association,  and  of  generally 
supervising  the  clearing-house  affairs.  This  committee 
has  charge  of  the  funds  belonging  to  the  association  and 
draws  on  each  bank  for  its  quota  of  expenses.  At  the 
first  meeting  of  the  association  after  the  election  of  the 


161 


National    M on  et ar y     Commission 

committee  it  submits  detailed  estimates  of  the  expendi- 
tures that  win  be  required  for  the  clearing  house  during 
the  current  year.  It  fixes  the  salaries  of  the  clerks  and 
approves  the  bonds  which  are  required  before  they  can 
enter  upon  their  duties.  It  has  power  to  remove  the  mana- 
ger or  any  of  the  clerks  whenever  it  may  deem  it  for  the 
best  interests  of  the  association  so  to  do.  The  committee 
is  also  empowered  to  examine,  if  necessary,  any  member 
of  the  association,  and  to  require  therefrom  securities  of 
such  an  amount  and  character  as  may  appear  to  it  to  be 
sufficient  for  the  protection  of  the  balances  resulting  from 
exchanges  at  the  clearing  house.  By  resolution  adopted 
October  14,  1890,  this  committee  is  empowered  to  permit 
or  refuse  to  any  member  the  privilege  of  clearing  for  an 
outside  institution. 

The  conference  committee  is  annually  elected,  and  its 
function  is,  in  concurrence  with  the  clearing-house  com- 
mittee, to  suspend  any  bank  from  the  privileges  of  the 
clearing  house,  in  cases  of  extreme  necessity,  until  the 
pleasure  of  the  association  is  ascertained  thereon.  No 
such  suspension,  however,  can  take  place  unless  a  ma- 
jority at  least  of  each  of  these  two  committees  is  present 
at  the  ordering  thereof,  or  unless  the  vote  be  unanimous. 
In  case  of  suspension  the  committee  is  required  to  call  a 
general  meeting  of  the  association  to  take  the  matter  into 
consideration. 

The  committee  on  admissions  is  elected  at  each  annual 
meeting,  and  the  clearing-house  committee  refers  thereto 
for  examination  all  applications  for  admission  into  the 
association. 


1&2 


Clearing-House      Methods 

The  nominating  committee  is  also  elected  annually, 
and  its  duty  is  to  present  to  the  association  at  each  annual 
meeting  the  names  of  candidates  for  president  and  sec- 
retary of  the  association  and  for  members  of  the  clearing 
house,  nominating,  conference,  and  arbitration  committees 
and  committee  on  admissions,  on  the  following  basis :  The 
president  and  secretary  are  eligible  for  two  successive 
years,  and  after  an  interval  of  one  year  they  are  again 
eligible  in  like  manner.  There  must  be  selected  every 
year  at  least  two  new  members  on  each  of  the  committees 
(having  still  three  old  members),  and  those  who  have 
been  longest  on  the  committees  must  go  off  first.  If  all 
have  been  on  the  same  length  of  time,  then  two  must  go 
off  by  lot.  After  an  interval  of  one  year  such  members 
are  again  eligible. 

The  function  of  the  arbitration  committee  is  to  hear 
and  determine  all  disputes  submitted  to  it  by  both  parties 
thereto,  one  or  both  of  which  are  members  of  the  associa- 
tion. It  is  the  duty  of  this  committee  also  to  record  a 
brief  abstract  of  each  case  referred  to  it,  together  with 
its  decision  thereon,  in  a  book  provided  for  that  purpose 
which  is  kept  at  the  clearing  house,  open  to  the  inspection 
of  all  the  members. 

The  association  at  present  (1909)  consists  of  50  mem- 
bers (32  national  banks  and  18  state  banks)  and  the 
United  States  subtreasury  located  at  New  York.  The 
latter  makes  its  exchanges  only  at  the  clearing  house,  its 
balances  being  settled  at  its  own  counter.  It  has  no 
voice  in  the  government  of  the  association,  and  pays  a 
nominal  sum  for  actual  expenses.     The  privilege  which 


163 


National    Monetary     Commission 

the  subtreasury  enjoys  of  making  its  exchanges  through 
the  clearing  house  is  a  matter  of  great  accommodation 
both  to  the  subtreasury  and  to  the  banks.  The  New 
York  post-office  clears  through  one  of  the  members,  but 
renders  no  compensation  to  the  association  for  the  privilege. 

The  membership  of  the  association  since  its  organiza- 
tion has  been  constantly  changing,  owing  to  the  admis- 
sion and  expulsion  of  members  and  voluntary  withdrawals, 
as  provided  by  the  constitution. 

The  association  began  with  51  members,  but  by  1858 
the  hst  had  declined  to  46,  the  lowest  number  in  the  history 
of  the  clearing  house.  A  membership  of  67  was  attained 
in  1895. 

On  February  28,  1854,  the  Bank  of  the  Union  was  ex- 
pelled and  the  clearing-house  association  was  authorized 
to  return  to  it  whatever  amount  was  necessary  to  offset 
its  advances  toward  the  expenses  of  the  clearing  house. 
In  the  following  December  the  Empire  City  Bank  was 
expelled  and  a  similar  resolution  was  passed  but  in  no 
case  thereafter  were  any  such  refunds  made. 

The  association  came  into  existence,  as  has  been  stated, 
in  1853,  but  it  was  not  until  February  29,  1856,  that  the 
first  additional  bank  was  admitted,  four  banks  having 
been  expelled  in  the  meantime.  The  list  continued  to 
vary  from  time  to  time  at  irregular  intervals,  until  at 
present  there  is  one  less  member  than  when  the  associa- 
tion started. 

The  constitution  is  very  explicit  in  its  terms  governing 
the  admission  and  conduct  of  members.     Applicants  are 


164 


Clearing-House      Methods 

first  considered  by  the  clearing-house  committee  and 
referred  hence  to  the  committee  on  admissions.  The 
latter  committee,  if,  in  its  opinion,  after  a  careful  exami- 
nation, the  applicants  are  qualified  for  membership,  refers 
them  to  the  association  for  final  action,  a  three-fourths 
vote  of  those  present  being  necessary  to  admission.  Banks 
may  be  elected  to  membership  at  any  meeting  of  the  asso- 
ciation, but  before  being  considered  by  the  clearing-house 
committee  each  applicant  must  be  shown  to  have  an  unim- 
paired capital  or  an  unimpaired  capital  and  surplus  of  at 
least  $500,000.  Each  new  member  is  required  to  signify 
its  assent  to  the  constitution,  in  the  same  manner  as  the 
original  members,  and  pay  an  admission  fee,  according  to 
capital,  as  follows:  A  bank  the  capital  of  which  does  not 
exceed  $5,000,000  must  pay  $5,000;  a  bank  the  capital 
of  which  exceeds  $5,000,000  must  pay  $7,500.  Any 
member  increasing  its  capital  is  required  to  pay  in  accord- 
ance with  those  rates. 

The  admission  charges  have  not  always  been  the  same. 
The  original  members  paid  no  admission  fee.  In  the 
constitution,  as  originally  adopted,  the  rate  was  fixed  at 
$500.  This  was  raised  to  $1,000  by  an  amendment 
adopted  October  11,  1854.  Under  the  constitution,  as 
revised  in  1865,  the  fees  were  based  on  the  capital  as 
follows:  For  banks  whose  capital  did  not  exceed  $500,000 
the  rate  was  fixed  at  $1,000;  for  those  whose  capital  did 
not  exceed  $1,000,000,  at  $2,000;  for  those  whose  capital 
did  not  exceed  $2,000,000,  at  $3,000;  for  those  whose 
capital  did  not  exceed  $3,000,000,  at  $4,000;     for  those 


^65 


National    Monetary     Commission 

whose  capital  did  not  exceed  $5,000,000,  at  $5,000;  and 
for  those  whose  capital  exceeded  $5,000,000,  at  $7,500. 
On  October  3,  1893,  the  amendment  was  adopted,  fixing 
the  rates  on  the  present  basis. 

The  power  of  expulsion  is  lodged  in  the  association,  but 
can  be  exercised  only  by  a  majority  vote  of  all  the  mem- 
bers. The  power  of  suspension  is  vested  jointly  in  the 
conference  and  the  clearing-house  committees.  Any  mem- 
ber may  withdraw  at  pleasure  after  paying  its  due  propor- 
tion of  all  expenses  incurred  and  signifying  its  intention 
to  withdraw  to  the  clearing-house  committee. 

There  were  some  57  banks  in  operation  in  New  York 
when  the  clearing  house  was  organized,  and  all  but  5  came 
into  the  association,  those  remaining  outside  being  small 
institutions.  Subsequently  two  or  three  of  these  applied 
for  admission,  but  inasmuch  as  they  were  not  deemed 
capable  of  meeting  the  requirements  imposed  upon  the 
existing  members,  they  were  rejected.  At  the  present 
time  only  about  45  per  cent  of  the  financial  institutions  of 
the  city,  which  included  national  banks,  state  banks,  and 
trust  companies,  are  members  or  nonmembers  clearing 
through  members  of  the  clearing-house  association. 

In  New  York  and  vicinity  are  32  banks  and  trust  com- 
panies nonmembers,  as  compared  with  the  50  members. 
The  nature  of  the  business  of  the  nonmembers,  however, 
quite  as  much  as  that  of  the  member  banks,  demands  that 
their  exchanges  go  through  the  clearing  house,  and  hence 
each  such  bank  or  trust  company  makes  a  special  arrange- 
ment with  some  member  to  act  as  its  clearing  agent,  upon 


166 


Clearing-House      Methods 

such  terms  of  security  as  they  may  agree  upon.  As  above 
stated,  there  are  32  outside  institutions  at  the  present 
time  making  their  exchanges  in  this  way. 

At  the  beginning,  the  subject  of  clearing  for  nonmem- 
bers  naturally  did  not  attract  much  attention,  but  as  the 
city  grew  in  business  importance  and  its  banks  increased 
in  power  and  numbers,  it  began  to  be  more  seriously  con- 
sidered. Several  amendments  were  made  to  the  constitu- 
tion, designed  to  regulate  the  action  of  nonmembers  and 
determine  their  relation  to  members.  On  January  1 1 , 
1855,  George  Curtis,  to  whom  reference  has  already  been 
made  as  the  author  of  the  constitution,  proposed  the  first 
amendment  on  this  subject,  which  was  subsequently 
adopted  as  follows: 

"Whenever  exchanges  shall  have  been  made  at  the 
clearing  house,  by  previous  arrangement  between  members 
of  the  association,  through  one  of  their  number  and  banks 
in  the  city  and  vicinity  who  are  not  members,  the  receiv- 
ing bank  at  the  clearing  house  shall  in  no  case  discontinue 
the  arrangement  without  giving  previous  notice,  which 
shall  not  take  effect  until  the  exchanges  of  the  morning 
following  the  receipt  of  such  notice  shall  have  been  com- 
pleted." 

It  will  be  observed  that  no  provision  is  made  for  the 
protection  of  banks  against  the  insolvency  of  nonmem- 
bers, but  that  the  clearing  member  is  made  responsible  for 
the  items  drawn  upon  the  nonmember,  and  is  prevented 
from  discontinuing  such  responsibility  until  the  exchanges 
are  completed  on  the  day  following  the  receipt  of  such 


167 


National    Monetary     Commission 

notice.     The  next  resolution  on  the  subject  was  adopted 
ten  years  later,  and  is  as  follows: 

Resolved,  That  no  member  of  the  clearing-house  association  shall  be 
allowed  to  make  the  exchanges  for  or  redeem  the  notes  or  checks  of  any 
other  bank  or  banks,  not  members  of  said  association,  without  first  giving 
notice,  over  the  signature  of  one  of  its  officers,  of  the  fact  of  such  redemp- 
tion; nor  shall  such  redemption  be  discontinued  but  upon  notice  in  the 
manner  prescribed  by  section  25  of  the  constitution. 

Here  for  the  first  time  a  requirement  was  made  of  the 
banks  that  they  should  give  notice  of  their  intention  to 
clear  for  nonmembers.  Again,  in  the  same  year,  another 
amendment  followed.     Thus: 

Whenever  any  member  of  the  association  shall  send  through  the  clear- 
ing house,  exchanges  of  any  bank  or  banks  in  the  city  or  vicinity  who  are 
not  members,  such  sending  shall  ipso  facto  and  without  further  notice  con- 
stitute said  member  the  agent  for  said  bank  or  banks  at  the  clearing  house; 
and  said  member  shall  be  liable  in  the  premises,  the  same  as  for  its  own 
transactions,  and  its  liability  in  all  such  cases  shall  continue  until  after  the 
completion  of  the  exchanges  of  the  morning  next  following  the  receipt  of 
notice  of  discontinuance  of  any  such  agency. 

This  virtually  repealed  the  former  resolution  requiring 
notice  of  the  creation  of  a  clearing  agency.  It  continued 
the  requirement  of  a  previous  notice  before  discontinuing 
such  agency,  and  clearly  established  the  measure  of  lia- 
bility of  the  clearing  member  for  the  items  of  the  non- 
member.  As  if  to  reenforce  the  above  resolution,  another 
was  adopted  in  May  of  the  following  year,  as  follows: 

Resolved,  That  the  liabilities  of  banks  in  the  clearing  house  doing  busi- 
ness for  the  banks  in  the  vicinity  are,  under  the  amendment  to  the  consti- 
tution, passed  April  26,  1865,  the  same  as  for  their  own  transactions. 

Clearing  for  nonmembers  continued  for  nearly  a  quarter 
of  a  century  without  further  regulation.  Finally,  in  1890, 
new  troubles  arose  from  the  failures  of  two  small  banks 
clearing  through  member  banks  and  the  looting  of  the 


168 


Clearing-House      Methods 

Sixth  National  Bank,  a  member.  Accordingly,  the  whole 
subject  of  clearing  for  nonmembers  was  most  carefully 
investigated  and  considered.  Many  favored  its  discon- 
tinuance altogether,  and  finally  the  subject  v/as  referred 
to  a  committee.  A  majority  of  the  committee  reported  in 
favor  of  discontinuance,  and  a  minority  in  support  of  the 
prevailing  plan.  The  association  adopted  the  views  of  the 
minority  and  voted  to  continue  on  the  existing  basis. 
This  led  to  the  following  resolution,  adopted  October  14, 
1890: 

Resolved,  That  on  and  after  January  i,  1891,  this  association  permits  its 
members  to  make  such  exchanges  only  after  the  consent  of  the  clearing- 
house committee  is  obtained ;  and  the  banks  or  parties  have  obligated  them- 
selves to  pay  to  the  clearing-house  association  an  annual  payment  of  two 
hundred  dollars,  and  also  to  consent  to  the  same  examinations  as  are  now 
required  of  its  members :  Provided,  however.  That  nothing  contained  in  this 
resolution  is  construed  as  making  such  banks  or  parties  members  of  the 
association. 

Thus,  discretion  regarding  the  clearing  for  nonmem- 
bers was  taken  out  of  the  hands  of  the  members  and  trans- 
ferred to  the  clearing-house  committee,  and  for  the  first 
time  nonmembers  were  required  to  pay  to  the  associa- 
tion a  definite  sum  in  consideration  of  the  privileges  ex- 
tended to  them.  Again,  on  December  21,  1896,  the  con- 
stitution was  amended  as  follows: 

Resolved,  That  the  amendment  to  the  constitution  adopted  October  14, 
1890,  assessing  banks  and  others  not  members  of  this  association,  and 
clearing  through  members,  $200  annually,  be  amended  by  increasing  such 
amount  to  $500  annually,  this  amendment  to  take  effect  on  and  after 
January  i,  1897. 

Later,  the  amount  was  still  further  increased  to  $i,ooo, 
at  which  figure  it  still  stands. 

A  resolution  was  also  passed,  to  take  effect  on  the  same 
date,  requiring  all  banks,  not  members  of  the  association, 

20040 — ID 12  169 


National    Monetary     Commission 

whose  checks  are  exchanged  at  the  clearing  house,  to  fur- 
nish the  manager  weekly  statements  of  their  condition, 
showing  the  average  amount  of  their  loans,  discounts, 
and  investments;  specie,  legal-tender  notes,  and  bank 
notes;  deposit  with  clearing-house  agent,  deposit  with 
other  New  York  City  or  Brooklyn  banks  and  trust  com- 
panies, net  deposits  and  circulation.  These  statements 
were  intended  for  the  records  of  the  clearing  house  and 
not  for  publication;  but  a  resolution  was  subsequently 
passed  requiring  that  they  be  published,  beginning  with 
the  first  Saturday  in  November,  1897. 

Thus  it  will  be  seen  that  by  resolutions  and  amend- 
ments covering  nearly  the  whole  period  of  its  history, 
the  New  York  Clearing  House  Association  has  been 
developing  the  present  system,  regulating  the  conduct 
of  those  outside  institutions,  which  enjoy  the  privileges 
of  the  clearing  house. 

The  relationship  of  trust  companies  to  the  clearing 
house,  particularly  in  view  of  the  number  of  trust  com- 
panies organized  and  entering  upon  business  during  the 
few  years  prior  to,  and  including,  1899,  had  been  a  sub- 
ject for  careful  consideration  on  the  part  of  the  manage- 
ment. A  subcommittee  of  the  clearing-house  committee 
was  appointed  October  26,  1899,  to  inquire  into  the  mat- 
ter and  make  a  report.  The  report  of  this  subcommittee, 
the  substance  of  which  is  given  below,  was  adopted  at  a 
meeting  of  the  association  held  on  the  3d  of  November,  1 899. 

The  report  at  the  outset  recites  that  the  constitution 
of  the  association,  particularly  the  amendment  of  October 
14,  1890,  imposes  upon  the  committee  the  responsibility 


170 


Clearing-House      Methods 

of  consenting  to  the  clearings  by  banks  and  trust  com- 
panies not  members  of  the  association.     The  report  then 
continues,  that  in  the  opinion  of  the  subcommittee  gen- 
eral   and    uniform   rules    should    from   time   to   time    be 
adopted.     Therefore,  the  following  were  recommended: 

No  trust  company  shall  be  permitted  to  clear  through  any  member  or 
nonmember  of  this  association,  unless  such  trust  company  shall  have  been 
in  operation  for  at  least  one  year  at  the  time  of  making  the  application. 

No  trust  company  shall  be  cleared  by  any  bank  or  trust  company,  mem- 
ber or  nonmember  of  this  association,  until  it  shall  have  been  examined 
by  the  clearing-house  committee  or  some  other  committee  of  the  associa- 
tion duly  appointed  for  that  purpose. 

Every  trust  company  clearing  through  a  member  of  this  association,  or 
which  may  hereafter  be  permitted  to  clear  through  such  member,  shall 
furnish  a  weekly  statement  of  its  condition  to  the  manager  of  this  associa- 
tion, in  the  same  manner  as  weekly  statements  of  nonmember  banks  clear- 
ing through  this  association  are  now  rendered.  Such  statements  shall 
include:  Capital;  net  profits;  average  amount  of  loans,  bills  purchased, 
and  investments  (not  real  estate);  average  amount  of  specie;  average 
amount  of  legal-tender  notes  and  bank  notes;  average  amount  on  deposit 
with  other  New  York  City  banks  and  trust  companies;  average  amount  of 
deposits. 

In  the  notice  sent  out  by  the  manager  of  the  clearing 
house  November  6,  1899,  embodying  the  foregoing,  it 
was  asserted  that  the  statements  required  of  the  trust 
companies  were  not  for  the  present  intended  for  publica- 
tion. The  form  of  statement  provided  for  use  in  this 
connection  is  given  among  the  illustrations. 

At  the  meeting  of  the  clearing-house  committee  above 
referred  to,  it  was  resolved  that  from  that  date  forward 
every  statement  of  averages  submitted  to  the  clearing 
house  by  a  member  or  nonmember  should  be  verified  and 
signed  by  an  officer. 

Most  of  the  important  trust  companies  in  the  city, 
mider  the  new  provisions,  became  associated  with  the 
clearing  house  as  nonmembers. 

171 


National    Monetary     Commission 


New  York, 

At  a  meeting  of  the  *  Board  of  Directors  of  the 

of. held 

the  following  resolution  was  adopted: 

^^  Resolved :  That  this  Board  hereby  agrees  to  the 
payment  of  One  Thousand  {$1000)  Dollars  per  annum, 
for  the  purpose  of  malcing  its  exchanges  through  a  Bank, 
member  of  the  New  York  Clearing-house  Association. 

"And  tins  Board  also  consents  to  the  same  examina- 
tions of  this as  are  now 

required  of  rnembers  of  the  Clearing-house  Association.^^ 


*  This  title  may  he  changed  to  read 
^^ Board  of  Trustees,  Executive  Committee,  <&c.,"  as  necessary. 


Resolution  Authorizing  Exchanges  Through  a  Member  Bank. 

172 


Clearing-House     Methods 


J^ew  Turk, JL9 


Chaimvan  CJ^earing-house  CommiUee 
Dear  Sir: 

The ^ 


of^ >._„ hereby  applies 

fur  consent  of  the  Clearing-hquse  Committee  to  maJce  the 
Exchanges  for . 


o/L.™.^ mi  and  after^ 

Stati'ment  of  its  condUion  enclosed. 

Respectfully, 


.flpprovcd. 


Application  to  ('leak  i'ou  Anothku  Bank. 
173 


National     Monetary     Commission 


Nos.  77-83  CEDAR  STREET. 


J^eiv  Torh,..^.:...^..^.. ^ , „ 

,..._.,,.^^ ^ Ji!sq.,. Cashier. 

Dear  Sir: 

Consent  of  the  Clearing-house  Coimnittee  is  hdreby 

given  to  the .^,..,.-„ 

of ,._.,......, __..... to  make  the  exchanges  at  the 

JVeiu  Torh  Cleaidng-house  for  the 

of on  wnd  after 

subject  to  the  rides  and  regulations  of  the  Association. 


By  order  of „_ _ 

Chairman  Clearing-house  Commitlee. 

, Manager. 


Consent  to  Clear  for  Anotjier  Bank. 


174 


CI 


earing 


-  H 


0  u 


s  e     Methods 


NEW  YORK  CLEARING-HOUSE. 

The  Weekly  Statement  as  provided  for  below  must  be  certified  by 
an  officer  and   sent  to  the  Clearing-house  at  the  close  of  business  on 
Friday  of  each  week. 
-  WILLIAM  SHERER, 

Manager. 

COPY  OF  STATEMENT 

OF    THE 

for  week 

ending  the day  of 190 .... 

as  required  by  Amendment  to  Section  25  of  the  Constitution  of  the 
New  York  Clearing-house  Association,  adopted  February  11th,  1903. 


Average  Amount  of  Loans,  and  Discounts 
and  Investments  (not  Real  Estate) 

Average  Amount  of  Specie 

Average  Amount  of  Legal  Tender  Notes 
and  Bank  Notes 

Average  Amount  on  Deposit  with  Clear- 
ing-house Agent 

Average  Amount  on  Deposit  with  other 
New  York  City  Banks  and  Trust 
Companies 

.Average  Amount  of  Deposits 

Average  .\mount  of  Circulation. 


Correct. 


FoKM  OF  Statement  of  Weekly  Averages  of  Non-Membkk 

Banks. 


175 


National    M  o  n  e  t  a  r  y     Commission 


The  Weekly  Statement  as  provided  for  below  must  be  certified  by  an 
officer  and  sent  to  the  Clearing-house  at  the  close  of  business  on  Friday 
of  each  week 

"  WILLIAM  SHERER, 

Manager. 

COPY  OF  STATEMENT 

op    THE, 

for  week 

ending  the. day  of . .  ,.•  ,• 190.  .  .  . 

as  required  by  Amendment-to  Section  25  of  the  Constitution  of  the 
New  York  Clearing-house  Association,  adopted  February  11th,  1903. 


Average  Amount  of  Loans,  Bills  Pur- 
chased and  Investments  (not  Real 
Estate) 

Average  Amount  of  Specie 


Average  Amount  of  Legal  Tender  Notes 
and  Bank  Notes 

Average  Amount  on  Deposit  with  other 
New  York  City  Banks  and  Trust 
Companies 

Average  Amount  of  Deposits 


Correct 


Form  of  Statement  of  Weekly  Aver.\ges  for  Trust  Companies. 


176 


Clearing-House      Methods 

The  arrangement  thus  consummated,  however,  was  to 
last  but  a  few  years.  The  New  York  state  banking  law 
at  that  time  did  not  require  that  trust  companies  should 
carry  any  cash  reserve,  while  it  provided  for  the  keeping 
by  state  banks  of  a  cash  reserve  in  their  own  vaults  of 
15  per  cent.  It  was  tacitly  understood  that  a  cash 
reserve  of  25  per  cent  should  be  maintained  by  all  the 
members  of  the  New  York  Clearing  House  Association, 
although  there  was  then  no  constitutional  provision  to 
that  effect.  This  understanding  did  not,  however,  ex- 
tend to  nonmembers,  with  the  result  that  the  state  banks, 
generally  speaking,  merely  met  the  requirement  of  the 
law,  viz,  15  per  cent,  and  the  trust  companies  used  their 
discretion. 

As  will  be  readily  observed,  the  trust  companies,  oper- 
ating under  broad  charters  which  gave  them  the  privilege 
of  transacting  a  banking  business,  of  which  by  far  the 
greater  number  took  advantage,  and  with,  as  before 
stated,  no  reserve  requirement,  had  an  immense  advan- 
tage over  the  members  of  the  clearing  house,  and  were 
thereby  enabled  to  make  considerable  inroads  into  their 
business. 

This  condition  of  affairs  caused  a  great  deal  of  dis- 
satisfaction among  the  associated  banks,  which  culmi- 
nated in  an  effort  on  the  part  of  the  association  to  more 
nearly  equalize  the  position  of  the  banks  and  trust  com- 
panies, which  took  the  form  of  the  following  resolution, 
enacted  into  law  on  February  11,  1903: 

Every  nonmember  institution  (not  a  bank  required  hy  law  to  maintain 
a  specified  reserve)  now  or  hereafter  sending  its  exchanges  through  a 
member  of  the  association,  shall  on  and  after  June   i,    1903,  keep  in  its 

177 


National    Monetary     Commission 

vaults  a  cash  reserve  equal  to  5  per  cent  of  its  deposits;  and  on  and  after 
February  i,  1904,  such  cash  reserve  shall  be  7^  per  cent  of  its  deposits^ 
and  on  and  after  June  i,  1904,  such  cash  reserve  shall  be  such  percentage 
as  shall  from  time  to  time  be  fixed  by  the  clearing-house  committee,  but 
not  less  than  10  nor  more  than  15  per  cent  of  its  deposits.  The  reserve 
hereby  required  shall  be  an  average  reserve  as  against  the  average  deposits 
as  shown  upon  its  weekly  statements. 

The  trust  companies  resented  very  strongly  this  at- 
tempt to  force  them  to  keep  a  cash  reserve,  and  during 
the  next  two  years,  almost  without  exception,  withdrew 
from  the  privileges  of  the  clearing  house,  rather  than 
submit  to  its  regulations  in  this  regard,  manifestly  fair 
though  they  were. 

After  the  panic  of  1907,  the  attitude  which  the  New 
York  clearing  house  had  assumed  on  this  question  was 
justified,  when  the  legislature  of  the  State  of  New  York 
enacted  a  law  compelling  the  trust  companies  in  New 
York  to  keep  a  cash  reserve  of  15  per  cent,  thus  placing 
them  on  an  equal  basis,  in  this  respect,  with  state  banks. 

In  the  meantime,  on  January  13,  1908,  the  clearing- 
house association  met  and  passed  the  following  resolu- 
tions, which  still  obtain  and  determine  the  conditions 
under  which  the  trust  companies  may,  at  the  present 
time,  become  full  members  of  the  association,  the  same 
as  banks: 

Trust  companies  organized  under  the  laws  of  the  State  of  New  York 
may  be  admitted  as  members  of  this  association  in  the  same  manner  and 
to  the  same  extent  as  banks  may  be  admitted,  and  when  so  admitted 
shall  be  entitled  to  all  the  rights  and  benefits  and  subject  to  all  the  con- 
ditions and  obligations  to  which  bank  members  are  or  shall  be  entitled  or 
subject  under  the  provisions  of  the  constitution. 

Trust  companies,  however,  becoming  members  of  the  association,  shall 
be  required  to  keep  a  cash  reserve  in  their  own  vaults  of  not  less  than 
25  per  cent  of  their  deposits.  A  failure  to  keep  such  reserve  shall  be 
sufficient  ground  for  action  under  section  6,  Article  III,  of  the  constitu- 
tion (which  provides  for  expelling  members). 

178 


Cleai'ing-House      Methods 

Three  days  later,  viz,  January  i6,  1908,  the  associa- 
tion for  the  first  time  in  its  history  passed  a  measure 
which  thereafter  compelled  all  its  members  to  keep  and 
maintain  in  their  own  vaults  a  cash  reserve  of  25  per 
cent  of  their  net  deposits. 

Each  bank  belonging  to  the  New  York  Clearing  House 
Association  is  required  to  furnish  to  the  manager  weekly, 
for  publication,  a  statement  of  its  condition,  showing 
the  average  amount  of  loans  and  discounts,  specie,  legal- 
tender  notes,  circulation,  and  deposits.  The  capital  and 
net  profits  also  are  given,  this  being  the  only  association 
which  gives  the  latter  item. 

The  matter  of  collecting  checks  and  other  items  out- 
side of  the  city  of  New  York  is  a  subject  that  for  many 
years  past  has  received  most  careful  thought  upon  the 
part  of  the  officers  and  members  of  the  New  York  clear- 
ing house.  An  amendment  to  the  constitution  was 
adopted,  March  13,  1899,  directly  bearing  upon  this  point 
and  embodying  a  policy  that  was  so  radical  as  not  only 
to  attract  attention  throughout  the  entire  financial  com- 
munity, but  at  the  outset  to  incite  more  or  less  opposition. 
As  time  has  passed,  however,  the  justness  of  the  pro- 
visions has  become  apparent  and  the  business  community 
has  acquiesced  in  what  is  manifestly  an  entirely  reason- 
able measure. 


179 


National     Monetary     Commission 


TRUST  COMPANIES. 

1 

Resources. 
Bonds  &  Mortgao'es 

Stocks  &  Bonds  (Market  Value): 
Public  Securities         

Other  Securities                      . .   . 

Loans                     ..... .......... 

Overdrafts                       ............. 

Real  Kstate   Furniture  &  Fixtures 

Due  from  Trust  Cos.,   Banks  and 

i 

Legal  Tenders  and  Bank  Notes 

Total 

Book  Value  Stocks  and  Bonds 

Liabilities. 
Capital                                

Surplus  and  Undivided  Profits   .   . . 

Due  Trust  Cos.,  Banks  and  Bankers. 
Deposits  (Not  Preferred) 

Certificates  of  Deposit  (Not  P'f'd) 

1 

Other  Liabilities 

Total 



Form  of  Statement  Required  by  the  New  York  Clearing- 
house Association  of  Trust  Companies. 

1 80 


Clearing-House     Methods 


NATIONAL  BANKS 

Xo                         

254007 

Liabilities. 
Capital                              . .           ..... 

Net  Profits 

Circulation 

Due  Banks  and  Trust  Co's 

Due  other  Depositors 

Unpaid  Dividends 

Total       

Resources. 
Loans  and  Discounts 

U.  S.  Bonds  on  hand 

U.  S.  Bonds  to  secure  circulation 

Bonds  to  secure  U.  S.  Deposits 

Other  Stocks  and  Bonds  and  Mtgs 

Premium  on  U.  S.  Bonds 

Real  Estate,  Furniture  &  Fixtures 

Due  from  Banks  and  Bankers 

Exchangea  for  Clearing-house 

Cash  Items  and  Bank  Notes 

Specie 

Legal  Tenders                 

Over  Drafts 

1 

Total 

Certified  Checks 

United  States  Deposits 

Form  Used  at  Clearing-house  in  Tabulating  National  Bank 
Statements. 

i8r 


National    Monetary     Commission 


STATE. 


No. 

364008 


Liabilities. 


Capital 

Net  Profits 

Due  Trust  Cos.,  Bks.,  Bkrs.  &  Broks 

Due  other  Depositors  not  Pfd 

Preferred  Deposits' 

Unpaid  Dividends 


Total. 


Resources. 


Loans  and  Discounts 

Stocks,  Bonds  and  Mortgages 

Real  Estate,  Furniture  &  Fixtures.  . 

Due  from  Trust  Cos.,  Bks.,  Bkrs., 
&  Broks.  not  incld'd  in  next  item. 

Due  from  Approved  Reserved  De- 
positories.  

Cash  Items  including  Exchanges  for 
Clearing-house 

Specie., •. 

Legal  Tenders  and  Bank  Notes .  .  . 

Over  Drafts 


'>^.>«TVTJ-'  n  .jci^ 


Total 


FoKM  Used  at  CLEAKiNo-nousE  in  Taiu'lating  State  Bank 
Statements. 


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184 


NEW  YORK  CLEARING-HOUSE. 


SXJMMARY    OF  WEEKLY   STATEMENTS. 


CLEARING-HOUSE   BANKS.   DAILY  . 


'U.  S.  Deposits  included     S 

CLEARING-HOUSE   BANKS,  ACTUAL  CONDITION  THIS   DAY 


Specie, 

Legal  Teodere, 
tDeposiU, 
Circulation, 

EE 

Cash  Rebeuve  % 

tU.  S.  Dep 

osiW  included     i 

ClearingB  for  the  week 
Balances    "    "       " 

Clearings  Ihis  day 

STATE  BANK 


.  TRUST  COMPANIES 


VB 

n  cfiST. 

PKR  CEVr. 

Cash  in  Vault            11 

Deiiusits  in  Banks 

and  Trust  Go's, 

Doposita  in  Banks 
and  Trust  Co's, 

Total           1 

Total 

Aggr^atc  Reserve  o 


c 


m 


Weekly  Statemen 


BANKS 


NEW  YORK  CITY. 

BOROUGHS    OF    MANHATTAN    AND    THE 
BRONX. 

Bank  of  Washington  Heights. 

Century  B ank 

Colonial  Bank 

Columbia  Bank 

Fidelity  Bank 

Jefferson  Bank 

Mount  Morris  Bank 

Mutual  Bank 

Plaza  Bank 

Twenty-third  Ward  Bank  (Bronx).. 

Union  E.xchange  National  Bank 

Yorkville  Bank  .  .• 

Coal  and  Iron  National  Bank 

New  Netherland  Bank 

Battery  Park  National  Bank 

Aetna  National  Bank 

BOROUGH  OF  BROOKLYN. 

Broadway  Bank 

ManufactiH'ers'  National  Bank 

Mechanics'  Bank 

Nassau  National  Bank 

National  City  Bank 

North  Side  Bank 

JERSEY  CITY. 

First  National  Bank,  Jersey  City 

Hudson  Co.  Xat.  Bank,  Jersey  City  . . 
Third  Nal  '1  Bank,  Jersey  City 

HOBOKEN. 

First  National  Bank,  Hobokcn 

Second  National  Bank,  Hoboken 

Total  National  )5anks 

"     State  Banks 

Totals 

*As  per  oOicial  reporlx.— 

12  National  Banks,  June  2;^,  I'JOU. 

15  State  Banks,  April  28,  I'JO!). 

Re.serve,  Sl,r)'l(i,775  Decrease. 
*As  of  July  Ki,  1909. 


20040 — 10.     (To  face  page  18 


NEW  YORK  CLEARING-HOUSE 
Weekly  Sifllemenl  of  NON-MEMBER  BANKS,  lor  Week  ending  Saturday,  July  24,  1909 

»-- 

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W 

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Tot,^Na™>«UJa««. 

■J:5a 

"iSX 

TolBlS. 

13.  an.  900 

nZ'*" 

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112  H7  (WO 

uxianm 

—"" 

iSSSf 

Dti-reuc         Dccmuu       DectMio 

(Tq  toco  page  1«4.)     .No.  s. 


C  I  e  a  r  i  n  g  -  H  o  u  s  e      Methods 

The  amendment  to  the  constitution,  being  an  addition 
to  section  8,  was  as  follows: 

The  clearing-house  committee  shall  have  power  to  establish  rules  and 
regulations  regarding  collections  outside  of  the  city  of  New  York,  by  mem- 
bers of  the  association  or  banks  or  trust  companies  or  others  clearing 
through  such  members,  and  the  rates  to  be  charged  for  such  collections,  and 
also  providing  for  enforcement  of  the  same.  The  committee  may  from  time 
to  time  make  any  additions  to,  or  changes  in,  such  rules  and  regulations  as  it 
deems  judicious.  After  any  rule  or  regulation  upon  the  subject  has  been 
once  established,  it  shall  not,  however,  be  altered  or  rescinded  until  it  has 
been  in  force  at  least  three  months,  except  by  majority  vote  of  the  clearing- 
house association. 

Under  this  amendment  the  following  rules  and  regula- 
tions regarding  collections  outside  of  the  city  of  New  York 
were  adopted  by  the  clearing-house  committee: 

Pursuant  to  authority  conferred  upon  it  by  the  constitution  of  the  New 
York  Clearing  House  Association,  the  clearing-house  committee  of  said 
association  establishes  the  following  rules  and  regulations  regarding  collec- 
tions outside  of  the  city  of  New  York,  by  members  of  the  association,  or 
banks,  trust  companies,  or  others  clearing  through  such  members,  and  the 
rates  to  be  charged  for  such  collections  and  also  regarding  enforcement  of 
the  provisions  hereof. 

Section  i.  These  rules  and  regulations  shall  apply  to  all  members 
of  the  association,  and  to  all  banks,  trust  companies,  or  others  clearing 
through  such  members.  The  parties  to  which  the  same  so  apply  are 
hereinafter  described  as  collecting  banks. 

Sec.  2.  For  [items  collected  for  the  accounts  of,  or  in  dealings  with 
the  governments  of  the  United  States,  the  State  of  New  York,  or  the  city 
of  New  York,  and  for  items  payable  in  the  cities  of  Boston,  Mass.;  Provi- 
dence, R.  L;  Albany,  N.  Y. ;  Troy,  N.  Y.;  Jersey  City,  N.  J.;  Bayonne, 
N.  J.;  Hoboken,  N.  J.;  Newark,  N.  J.;  Philadelphia,  Pa.;  and  Baltimore, 
Md.,  the  charge  shall  in  all  cases  be  discretionary  with  the  collecting 
bank,  and  the  same  shall  not  be  governed  by  the  provisions  of  these 
rules  and  regulations. 

Sec.  3.  For  all  items  from  whomsoever  received  (except  on  those 
points  declared  discretionary  in  sec.  2),  payable  at  points  in  Connecticut, 
Delaware,  District  of  Columbia,  Indiana,  Illinois,  Kentucky,  Maine, 
Maryland,  Massachusetts,  Michigan,  Missouri,  New  Hampshire,  New  Jer- 
sey, New  York,  Ohio,  Pennsylvania,  Rhode  Island,  Vermont,  \'irginia. 
West  Virginia,  and  Wisconsin,  the  collecting  banks  shall  charge  not  less 
than  one-tenth  of  i  per  cent  of  the  amount  of  the  items,  respectively. 

20040 — 10 13  185 


National     Monetary     Commission 


Sec.  4.  For  all  items  from  whomsoever  received,  payable  at  points  in 
Alabama,  Arizona,  Arkansas,  California,  Colorado,  Florida,  Georgia, 
Idaho,  Indian  Territory,  Iowa,  Kansas,  Louisiana,  Minnesota,  Mississippi, 
Montana,  Nebraska,  Nevada,  New  Mexico,  North  Carolina,  North  Dakota, 
Oklahoma,  Oregon,  South  Carolina,  South  Dakota,  Tennessee,  Texas, 
Utah,  Washington,  Wyoming,  and  Canada,  the  collecting  banks  shall 
charge  not  less  than  one-quarter  of  i  per  cent  of  the  amount  of  the  items, 
respectively. 

Sec  5.  In  case  the  charge  upon  any  item  at  the  rates  above  specified 
does  not  equal  10  cents,  the  collecting  bank  shall  charge  not  less  than  that 
sum;  but  all  items  received  from  any  one  person  at  the  same  time  and 
payable  at  the  same  place  may  be  added  together  and  treated  as  one  item 
for  the  purpose  of  fixing  the  amount  chargeable. 

Sec.  6.  The  charges  herein  specified  shall  in  all  cases  be  collected  at  the 
time  of  deposit  or  not  later  than  the  loth  day  of  the  following  calendar 
month.  No  collecting  bank  shall,  directly  or  indirectly,  allow  any  abate- 
ment, rebate,  or  return  for  or  on  account  of  such  charges  or  make  in  any 
form,  whether  of  interest  on  balances  or  otherwise,  any  compensation 
therefor. 

Sec.  7.  Every  collecting  bank,  trust  company,  or  other  corporation 
not  a  member  of  the  association,  but  clearing  through  a  member  thereof, 
shall  forthwith  adopt  by  its  board  of  directors  a  resolution  in  the  following 
terms,  and  file  a  certified  copy  thereof  with  the  association  as  evidence 
as  therein  specified: 

Whereas  this  corporation  has  acquired  the  privilege  of  clearing  and 
making  exchange  of  its  checks  through  the  New  York  Clearing  House 
Association,  and  is  subject   to  its  rules  and  regulations:  Now,  therefore, 

Be  it  resolved.  That  this  corporation  hereby  in  all  respects  assents  to 
and  agrees  to  be  bound  by  and  to  comply  with  all  rules  and  regulations 
regarding  collections  outside  of  the  city  of  New  York  which  may  be  estab- 
lished pursuant  to  the  constitution  of  said  association,  and  that  the  presi- 
dent of  this  corporation  is  hereby  instructed  to  file  a  certified  copy  of  this 
resolution  with  the  clearing-house  association  as  evidence  of  such  assent 
and  agreement  on  the  part  of  this  corporation. 

Sec.  8.  In  case  any  member  of  the  association  shall  learn  that  these 
rules  and  regulations  have  been  violated  by  any  of  the  collecting  banks, 
it  shall  immediately  report  the  facts  to  the  chairman  of  the  clearing-house 
committee,  or,  in  his  absence,  to  the  manager  of  the  association.  Upon 
receiving  information  from  any  source  that  there  has  been  a  violation  of 
the  same,  said  chairman,  or,  in  his  absence,  said  manager,  shall  call  a 
meeting  of  the  committee.  The  committee  shall  investigate  the  facts  and 
determine  whether  a  formal  hearing  is  necessary.  In  case  the  committee 
so  concludes  it  shall  instruct  the  manager  to  formulate  charges  and  present 
them  to  the  committee.  A  copy  of  the  charges,  together  with  written 
notice  of  the  time  and  place  fixed  for  hearing  regarding  the  same,  shall 

186 


Clearing-House      Methods 

be  served  upon  the  collecting  bank  charged  with  such  violation,  which  shall 
have  the  right  at  the  hearing  to  introduce  such  relevant  evidence  and  sub- 
mit such  argument  as  it  may  desire.  The  committee  shall  hear  whatever 
relevant  evidence  may  be  oflfered  by  any  person  and  whatever  arguments 
may  be  submitted,  and  shall  determine  whether  the  charges  are  sus- 
tained. In  case  it  reaches  the  conclusion  that  they  are,  the  committee 
shall  call  a  special  meeting  of  the  association  and  report  thereto  the  facts 
with  its  conclusions.  If  the  report  of  the  committee  is  approved  by  the 
association,  the  collecting  bank  charged  with  such  violation  shall  pay 
to  the  association  the  sum  of  $5,000,  and  in  case  of  a  second  violation  of 


1899. 

I  hereby  certify,  that,  at  a  meeting  of  the  Board  of  Directors  of 

of held 

1899,  the  following  preamble  and  resolution  were 

adopted: 

M'hereas  this  corporation  has  acquired  the  privilege  of  clearing  and  making  ex- 
change of  its  checks  through  the  New  York  Clearing  House  Association,  and  is  subject 
to  its  rules  and  regulations:  Now,  therefore. 

Be  it  resolved,  That  this  corporation  hereby  in  all  respects  assents  to  and  agrees  to  be 
bound  by  and  to  comply  with  all  rules  and  regulations  regarding  collections  outside  of  the 
city  of  New  York  which  may  be  established  pursuant  to  the  constitution  of  said  associa- 
tion, and  that  the  president  of  this  corporation  is  hereby  instructed  to  file  a  certified  copy 
of  this  resolution  with  the  clearing-house  association  as  evidence  of  such  assent  and 
agreement  on  the  part  of  this  corporation. 

[.SEAL.] 


Agreement  to  Comply  with    Rules  and  Regulations   Regarding  Collections 
Outside  of  New  York. 

these  rules  and  regulations  any  collecting  l)ank  may  also,  in  the  discre- 
tion of  the  association,  be  excluded  from  using  its  privileges,'  directly  or 
indirectly,  and,  if  it  is  a  member,  expelled  from  the  association. 

By  resolution  of  the  clearing-house  committee,  the  fore- 
going resolutions  went  into  effect  on  the  3d  day  of  April, 
1899. 

Most  complete  and  accurate  records  are  kept  at  the 
New  York  clearing  house  of  all  the  transactions,  both  of 
the  exchanges  between  the  banks  and  of  all  the  important 
acts  relating  to  the  administration.  Six  permanent  em- 
ployees, subordinate  to  the  manager  and  assistant  man- 


187 


National    Monetary     Commission 

ager,  are  required  to  perform  these  duties,  the  attention 
of  the  latter  two  being  almost  wholly  occupied  in  work  of 
an  administrative  character. 

There  are  about  twenty-five  records,  consisting  of 
ledgers,  statements,  books,  and  registers.  The  most 
important  are  as  follows :  A  record  book  containing  a  copy 
of  the  manager's  proof  sheet,  showing  the  daily  exchanges 
and  balances  of  the  several  banks  and  the  totals  of  the 
same;  a  ledger  showing  the  exchanges  and  balances  of 
each  bank  kept  separately;  the  same  being  a  compilation 
from  the  proof  sheet;  a  registry  book  showing  the  bal- 
ances received  at  the  clearing  house  each  day;  a  record 
of  the  kinds  and  amounts  of  money  received  in  payments 
of  balances  by  days,  months,  and  years  since  1882;  a 
weekly  statement  record  showing  the  weekly  statements 
required  from  members  for  publication;  the  statements 
made  in  response  to  the  call  of  the  Comptroller  of  the 
Currency  and  the  state  superintendent  of  banks,  com- 
piled and  recorded  for  the  use  of  members  of  the  associa- 
tion; an  individual  weekly  bank  statement  introduced 
in  1892,  being  a  compilation  of  the  weekly  statement  by 
banks;  a  record  of  the  increase  and  decrease  in  the  items 
called  for  in  the  weekly  statements;  an  annual  record  of 
comparative  statements  of  footings  of  weekly  statements; 
a  record  for  the  quarter  begun  in  1892,  showing  the  re- 
sources, liabilities,  dividends,  and  sales  and  book  value 
of  stock;  a  record  of  information,  as  complete  as  possible, 
regarding  all  the  banks  in  New  York  City;  a  record  of  the 
issue  of  clearing-house  certificates  upon  the  deposit  of 
gold   coin;  gold   and   silver   certificates   and   legal-tender 


Clearing-House     Methods 

notes  and  also  upon  the  deposit  of  collateral  security,  with 
the  loan  committee  when  in  session;  a  general  statement 
of  fines  and  corrections  of  clerks  since  1877;  a  record  of 
the  returns,  as  far  as  possible,  from  the  various  clearing 
houses  of  the  United  States. 

There  are  about  ten  other  records  of  less  importance, 
besides  the  usual  ledger,  journal,  and  cash-book,  in  which 
the  clearing  house  keeps  its  own  accounts  and  the  records 
of  the  proceedings  of  the  various  committees. 


189 


Chapter  XIV. 

DAILY   ROUTINE  OF  THE   NEW  YORK  CLEARING 

HOUSE. 

THE  CLEARING  ROOM — CLERKS  AND  MESSENGERS — THE 
manager's  part — HOW  THE  EXCHANGES  ARE  MADE— 
THE  CASH  BALANCE  PAID  IN — TPIE  DISBURSEMENTS — 
CLEARING-HOUSE  GOLD  DEPOSITORY — RESTRICTIVE  IN- 
DORSEMENTS— PRO  RATING  OF  EXPENSES — RECORD  OF 
FINES — TABLE  OF  ANNUAL  CLEARINGS — TABLE  OF  AVER- 
AGE   DAILY    BALANCES. 

The  clearing  room  of  the  New  York  clearing  house  is 
a  beautiful  and  commodious  apartment,  60  feet  square, 
surmounted  by  a  dome  rising  25  feet  above  the  walls. 
Light  enters  through  the  glass  forming  the  upper  part 
of  the  dome,  and,  when  necessary,  additional  illumina- 
tion is  secured  by  the  use  of  electric  lights,  which  encircle 
the  base  of  the  dome.  Four  rows  of  desks  occupy  the 
floor,  with  sufficient  space  between  for  an  easy  move- 
ment of  the  clerks  in  delivering  the  exchanges.  Each 
member  has  its  own  numbered  desk,  separated  from  the 
one  on  the  right  and  left  by  network  of  wire.  At  the 
east  end  of  the  room  is  the  manager's  gallery,  elevated 
sufficiently  to  command  an  easy  view  of  the  scene  of 
operations.  It  is  made  accessible  in  front  by  steps  and 
in  the  rear  by  an  elevator. 

Each  business  day,  at  10  o'clock,  the  exchanges  take 
place  between  the  banks.     About  fifteen  minutes    before 

190 


Clearing-House      Methods 

the  hour  designated  the  clerks  begin  to  arrive.  Formerly 
it  was  the  custom  for  each  member  to  send  only  two 
clerks,  but  so  numerous  and  cumbersome  have  become 
the  exchanges  of  many  of  the  banks  that  it  is  now  neces- 
sary to  send  one  and  sometimes  two  extra  clerks  to  assist 
in  transporting  the  items  to  and  from  the  clearing  house 
and  in  delivering  the  packages. 

The  two  essential  representatives  of  each  bank  are 
the  "delivery  clerk"  and  the  "settling  clerk."  The 
former  delivers  the  packages  brought,  and  the  latter 
receives  the  return  packages  from  the  messengers  of  the 
other  banks. 

Each  member  sends  its  items  for  the  other  banks  made 
out  separately  and  inclosed  in  envelopes,  with  the  amounts 
listed  on  the  "exchange  slip"  attached  to  the  exterior. 
On  their  arrival  at  the  house  the  settling  clerks  furnish 
the  proof  clerk,  sitting  at  his  desk  in  the  manager's  gal- 
lery, with  the  "first  ticket,"  upon  which  is  entered  the 
"amount  brought"  or  "credit  exchange,"  and  which 
the  latter  transcribes  on  the  clearing-house  proof  under 
the  head  of  "Banks  Cr."  The  total  of  the  amounts 
thus  brought  by  the  several  clerks  constitutes  the  right- 
hand  main  column  of  that  sheet.  If  each  messenger 
has  a  package  for  each  of  the  other  banks,  there  are 
2,500  in  all  to  be  delivered. 

As  a  fact,  in  all  other  respects  than  the  quantity  of 
packages,  this  is  the  number  of  transactions  between  the 
clerks,  for  it  is  found  in  practice  better  to  use  a  blank 
slip  than  to  omit  a  slip  merely  because  there  is  no  amount 
to  put  upon  it.     This  plan  saves  doubt  and  unnecessary 


191 


National     M  o  n  et  ar  y     Com  m  i  s  s  i  o  n 

searching  when  looking  after  the  proof.  The  stationery 
used  by  each  of  the  several  banks  is  put  up  in  sets  in 
numerical  order,  and  this  is  a  reason  why  it  is  easier 
to  use  all  the  slips  than  to  discard  those  which  happen 
to  have  no  items.  Accordingly,  as  the  delivery  clerks 
pass  the  desks,  as  is  described  farther  on,  it  is  the  rule 
to  deposit  the  "small  ticket"  with  the  receiving  clerk 
in  each  case,  whether  there  is  a  package  corresponding 
to  it  or  not.  When  the  settling  clerks  come  to  make 
their  summing  up,  first  checking  back  by  the  small  tickets, 
they  find  that  the  blank  spaces  in  their  sheets  are  justi- 
fied by  the  blank  tickets  of  corresponding  numbers, 
and  are  in  this  respect  assured  of  the  correctness  of  their 
work. 

When  the  hand  of  the  clock  points  to  a  few  minutes 
before  lo  o'clock  the  manager  appears  in  his  gallery, 
usually  surrounded  by  a  group  of  visitors.  At  one 
minute  before  lo  he  sounds  a  gong  as  a  signal  for  each 
of  the  clerks  to  station  himself  in  his  proper  place.  The 
settling  clerks  occupy  their  separate  desks  on  the  inside 
of  the  counter,  while  the  delivery  clerks  form  on  the  out- 
side with  their  exchanges  either  on  the  left  arm  or  car- 
ried in  a  box  or  case  of  some  light  material.  The  deliv- 
ery clerks  arrange  themselves  in  the  consecutive  desk 
order,  and  stand  ready  for  delivery  as  they  pass  along 
the  counter.  They  carry  "delivery  clerks'  receipts"  con- 
taining the  amounts  for  each  bank  arranged  in  order, 
upon  which  the  several  settling  clerks,  or  their  assistants, 
give  receipts  for  the  package  delivered. 


192 


2d  Teller, 

No.  1. 

BANK  OF  NEW  YORK  NAT'l  BANKINS  ASSOCIATION 

FROM  No.  6i. 

THE  FOURTH  NATIONAL  BANK. 

_ - - 1909 


Form  op  Exchange  Slip. 


No.   1. 
BANK   OF   NEW  YORK 

NATIONAL  BANKINQ  ASSOCIATION. 

From  No.  61 
Fourth  National  Bank* 


$ 


Fac-simile  of  "  Small  Ticket  "   Deposited  by  MES-f 

SENGER   WITH  SETTLING   ClERK. 


193 


National     Monetary     Commission 


194 


Clearing-House     Methods 

All  are  now  in  position  for  the  exchange.  The  manager 
calls  "ready,"  and  promptly  at  lo  o'clock  he  sounds  the 
gong  again  and  the  delivery  of  the  packages  begins.  He 
looks  down  upon  four  columns  of  young  men  moving 
simultaneously  like  a  military  company  in  step.  At  the 
start  each  advances  to  the  desk  in  front  where  his  first 
delivery  is  to  be  made.  He  deposits  the  package  of  items 
and  also  the  receipt  slip  on  which  the  assistant  of  the  set- 
tling clerk  (or,  in  the  case  of  small  banks,  the  settling 
clerk  himself)  writes  his  initials  opposite  the  amount  of 
the  package  delivered  in  the  blank  space  provided 
for  that  purpose.  At  the  same  time,  in  an  opening 
in  the  desk  provided  for  that  purpose,  he  deposits  a  "  small 
ticket"  containing  the  amount  of  the  package.  If  cor- 
rect, it  must  agree  with  the  amount  listed  on  the  "ex- 
change slip."  This  process  is  repeated  at  the  desk  of  all 
the  banks,  each  clerk  making  the  complete  circuit  in  ten 
minutes  to  the  point  from  which  he  started. 

Being  now  at  liberty,  each  delivery  clerk  takes  back  to 
his  bank  the  exchanges  deposited  by  the  other  messen- 
gers, while  the  settling  clerks  remain  until  the  proof  is 
made. 

The  settling  clerks,  immediately  upon  the  completion 
of  the  exchange  of  packages,  sum  up,  as  quickly  as  possi- 
ble, the  amounts  entered  on  their  statements  under  the 
head  of  "Banks  Dr."  Upon  ascertaining  the  total  they 
make  out  a  "second  ticket,"  containing  the  credit  and 
debit  exchanges  and  the  balance,  and  send  the  same  to 
the  "proof  clerk,"  who  transcribes  the  debit  exchange 
under  the  head  of  "  Banks  Dr."  (the  credit  exchange  hav- 


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Mechanics'  National  Bank, 
Bank  of  America, 
Phenix  National  Bank, 
National  City  Bank, 
Chemical  National  Bank, 
Merchants'  Exchange  Nat'l  Bank, 
Gallatin  National  Bank, 
Seaboard  National  Bank, 
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Bank  of  America, 
Phenix  National  Bank, 
National  City  Bank, 
Chemical  National  Bank, 
Merchants'  Exchange  Nal'l  Bank, 
Gallatin  National  Bank, 
Bank  of  the  Metropolis, 
West  Side  Bank, 
Seaboard  National  Bank, 
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197 


National     Monetary     Commission 

ing  been  already  entered) ,  and  the  balance  on  the  credit  or 
debit  side,  as  the  case  may  require. 

While  this  is  being  done  the  settling  clerks  are  checking 
back  from  the  small  tickets  to  ascertain  whether  the 
amounts  agree  with  the  amounts  listed  on  their  state- 
ments from  the  exchange  slips.  By  this  time  the  proof 
clerk  has  footed  the  four  columns  on  his  sheet,  namely, 
the  debit  and  credit  exchanges  and  the  debit  and  credit 
balances.  If  the  former  two  agree  with  the  latter  two 
the  work  is  correct,  and  the  result  is  announced  by  the 
manager,  who  calls  off  credits  and  debits. 

As  he  calls  off  these  balances,  which  are  named  in  thou- 
sands of  dollars,  the  hundreds  and  fractional  parts  being 
omitted,  the  clerks  list  the  amounts  on  a  special  slip  pro- 
vided for  the  purpose,  and  thereby  secure  a  general  report 
of  the  balances  of  the  day  to  take  back  with  them  for  the 
inspection  of  their  several  cashiers.  By  these  reports  the 
managers  of  the  several  banks  are  informed  of  those  who 
have  balances  to  be  paid  them  by  the  clearing  house,  and 
also  of  those  who  are  to  pay  amounts  into  the  clearing 
house. 

The  time  elapsed  since  the  manager  sounded  his  gong 
for  starting  the  work  up  to  the  completion  of  the  proof 
is  perhaps  forty-five  minutes,  or  possibly  a  little  more. 
Three-quarters  of  an  hour  is  the  limit  before  fines  are  in 
order  against  those  who  have  made  the  errors  that  pro- 
long the  work,  but  it  is  not  often  that  it  becomes  neces- 
sary to  impose  lines.  The  record  time  is  thirty-five  min- 
utes, although  the  dates  when  the  proof  has  been  reached 
in  thirty-seven  to  forty  minutes  from  the  time  the  delivery 

198 


CI 


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Methods 


199 


Nation  a  I     M  o  n  e  t  a  r  y     C  o  m  m  i  s  s  i  o  n 

clerks  started  on  their  rounds  are  numerous.  When  a 
particularly  good  showing  in  this  regard  has  been  accom- 
plished the  announcement  of  the  result  by  the  manager 
is  very  likely  to  be  greeted  with  applause. 

But  suppose,  as  not  infrequently  happens,  there  is  a 
discrepancy.  The  proof  sheet  does  not  balance,  which 
clearly  indicates  that  there  is  an  error  in  the  work  of  one 
or  more  of  the  clerks.  The  manager  imm.ediately  an- 
nounces the  difference  and  the  clerks  proceed  to  search 
for  it. 

Various  methods  are  resorted  to,  according  to  the  nature 
of  the  difference.  Usually  the  manager  calls  for  an  ex- 
change of  sheets,  to  the  right  or  to  the  left,  for  examination 
of  footings,  and  in  cases  of  apparent  error  in  entry  the 
amounts  are  called  back.  This  is  the  final  method  of 
revision,  and  if  the  additions  are  correct  it  must  make  the 
proof. 

Thus  far  no  money  has  entered  into  the  transaction. 
Checks,  notes,  drafts,  and  other  items  have  passed 
through  the  exchanges,  but  as  yet  no  occasion  has  arisen 
for  the  use  of  a  single  penny.  Evidently,  however,  the 
clearing  is  not  yet  complete.  Each  member  has  in  its 
possession  paper  drawn  upon  itself  which  the  other  mem- 
bers  have  credited  on  their  books,  and  likewise  each  mem- 
ber has  given  in  exchange  to  each  of  the  other  members  the 
paper  drawn  upon  them,  respectively,  and  which  it  has 
credited  upon  its  own  books.  But  the  possibility  is  very 
remote  that  the  amounts  of  the  items  delivered  by  any 
member  to  the  other  banks  will  exactly  balance  the  sum 
total  of  the  items  received  from  them.     Indeed,  so  slight 


Clearing-House      Methods 


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National     Monetary     Co  m  m  i  s  s  i  o  n 

is  the  chance  of  such  an  agreement  that  in  the  whole  his- 
tory of  the  association  there  has  not  been  a  single  instance 
of  this  kind,  although,  as  we  shall  see,  the  approach  on  one 
occasion  was  within  one  cent  of  an  exact  exchange. 
Hence  each  day  after  the  exchange  the  general  proof  will 
show  a  debit  on  the  part  of  some  of  the  banks  and  a  corre- 
sponding credit  on  the  part  of  others.  To  complete  the 
clearings,  therefore,  it  is  necessary  for  the  banks  to  settle 
these  balances. 

Accordingly,  before  half  past  i  o'clock  each  debtor 
bank,  in  compliance  with  the  requirement  of  the  consti- 
tution, pays  into  the  clearing  house  the  amount  of  its 
debit  balance  and  obtains  a  receipt  for  the  same,  signed 
by  the  assistant  manager.  After  half  past  i  o'clock  the 
creditor  banks  receive  at  the  clearing  house  their  respec- 
tive balances,  and  give  their  receipt  for  the  same  in  a  book 
provided  for  that  purpose;  but  in  no  case  can  a  creditor 
bank  receive  its  balance  until  all  the  debtor  banks  have 
paid  in. 

With  the  exception  of  fractional  amounts,  balances 
are  settled  with  legal-tender  notes,  gold  coin.  United 
States  and  clearing-house  gold  certificates.  All  legal- 
tender  notes  and  United  States  gold  certificates  are 
made  up  in  packages  of  $i,ooo,  $2,000,  $3,000,  $4,000, 
$5,000,  $10,000,  $20,000,  $50,000,  and  $100,000  each,  and 
all  notes  of  a  denomination  smaller  than  $500  should  be 
put  up  in  packages  of  not  over  $5 ,000.  All  packages  should 
be  sealed  and  distinctly  marked  with  the  name  of  the 
institution,  the  amount,  the  date,  and  the  kind  of  money 
contained  therein. 


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PANKS. 


Bank  of  N.  Y.  Nat'l  Bkg  Assoc'n 
Bank  of  the  Manhattan  Company 
Merchants'  National  Bank 
Mechanics'  National  Bank 
Bank  oi'  America 
Phenix  National  Bink 
National  City  Bank 
Chemical  National  Bank 
Merchants'  Exchange  Nat.  Bank 
Gallatin  National  Bank 
Seaboard  National  Bank, 
Liberty  National  Bank 
N.  Y.  Produce  Exchange  Bunk 
State  Bahk 

Fourteenth  Street  Bank 
National  Copper  Bank 
The  Coal  and  Iron  National  Bank 


Dr. 


Balances. 


Cr. 


Form  of  Settling  Clerk's  Report  to  hls.  Bank  of  Daily 

Balances. 

203 


National     Monetary     Commission 

By  virtue  of  their  convenience  and  safety  the  clearing- 
house certificates,  elsewhere  referred  to,  are  now  used 
extensively  in  the  liquidation  of  balances.  These  are  of 
two  kinds — those  issued  upon  the  deposit  of  gold  coin, 
gold  certificates,  silver  certificates,  and  legal-tender  notes 
in  the  clearing-house  vaults,  and  those  issued  upon  the 
deposit  of  gold  coin  with  the  assistant  treasurer  of  the 
United  States.  Such  certificates  are  issued  in  denomina- 
tions of  $5,000  and  $10,000,  corresponding  to  the  full 
amount  of  the  gold  deposited,  and  are  made  negotiable 
only  among  the  associated  banks  by  indorsement  on  the 
back. 

The  holders  of  these  certificates  are  the  absolute  owners 
of  the  gold  represented  bv  them,  and  are  at  liberty  to 
redeem  the  same  at  any  time  during  banking  hours.  It  is 
entirely  optional  with  the  members  to  make  such  deposits 
or  not.  They  act  according  to  their  pleasure;  but  any 
member  holding  such  certificates,  and  transferring  the 
same  to  any  party  not  a  member,  is  subject  to  a  fine  of 
$100  for  each  offense. 

The  Bank  of  America  was  originally  constituted  a 
common  coin  depository,  to  hold  in  special  trust  and  to 
issue  certificates  in  denominations  of  $1,000,  $5,000,  and 
$10,000  upon  the  deposit  of  such  gold  coin  as  the  other 
banks  might  place  therein. 

The  clearing  house  has  been  its  own  depository  since  its 
removal  to  the  new  location.  Sometimes,  when  gold  coin 
is  in  demand  or  there  is  a  stringency  in  the  money  market, 
the  coin  is  withdrawn  from  the  depository  by  presentation 
of  these  certificates  in  considerable  amounts.  At  other 
times  the  coin  is  freely  deposited. 


204 


Clearing-House     Methods 


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National     Monetary     Commission 


206 


Clearing-House      Methods 


Registered  ai  the 
NEW  YORK  CLEARING-HOUSE, 

Nt'w  York, ~ f898. 

Pay  only  to  any  Bank  member  of  the  Neva 
York  Clearing-house  Association* 


CONSTITUTION', 

Article  VI,  Section  7. 

Any  member  of  the  Clearing-house  Associa. 
tion  who  shall  pay  or  deliver  to  any  party,  other 
than  a  member  of  the  said  Association,  the  certifi- 
cate of  deposit  of  the  Clearing-house  Depository, 
shall  be  subject  to  a  fine  of  $100  (one  hundred 
dollars). 

Form  ok  Gold  Certificate — Back. 


207, 


National    Monetary     Commission 

A  careful  record  is  kept  at  the  clearing  house  of  the 
amounts  of  money  and  certificates  used  in  the  settlement  of 
balances.  Some  idea  of  the  relative  proportion  of  the 
various  kinds  of  money  and  certificates  employed  may 
be  gained  from  the  record  for  the  year  ending  October  5, 
1908.     The  debit  balances  were  paid  in  as  follows: 

United  States  bearer  gold  certificates $1,755,781,  000.  00 

United  States  order  gold  certificates 296,  210,  000.  00 

Clearing-house  gold  certificates 752,  420,  000.  00 

Clearing-house  loan  certificates 528,  710,  000.  00 

Clearing-house  note  depository  certificates: 

Legal  tenders ii570.  ooo-  00 

Gold  certificates 3,  605,  000.  00 

Silver  certificates 3,  020,  000.  cx) 

United  States  legal  tenders  and  change 68,  316,  271.41 

^3,409,632,  271.41 

The  course  pursued  by  the  manager,  in  the  event  of 
failure  on  the  part  of  any  member  to  appear  at  the  proper 
hour  to  pay  the  balance  against  it,  differs  somewhat  from 
that  followed  in  many  other  associations.  Article  10, 
section  III,  of  the  constitution  provides  that  in  such 
an  emergency  "the  amount  of  that  balance  shall  be 
immediately  furnished  to  the  clearing  house  by  the  several 
members  exchanging  that  day  with  the  defaulting  member 
pro  rata,  according  to  their  respective  balances  against 
said  defaulting  member,  resulting  from  the  exchanges  of 
that  day,  and  the  manager  shall  make  requisition  accord- 
ingly, so  that  the  general  settlement  may  be  accomplished 
with  as  little  delay  as  possible.  The  respective  amounts 
furnished  the  clearing  house  on  account  of  the  defaulting 
member  will  constitute  claims  against  the  defaulting 
member  in  favor  of  the  several  banks  furnishing  the  same." 

\ 
\ 

208 


Clearing-House      Methods 

Thus  it  will  be  observed  that  they  shall  immediately 
furnish  the  clearing  house  the  amount  of  that  balance  in 
proportion  to  their  respective  balances  against  the  de- 
faulting bank.  Most  clearing  houses  in  a  similar  exi- 
gency require  that  a  member  defaulting  in  the  payment 
of  a  debit  balance  shall  deliver  to  the  manager  all  the 
checks  received  through  the  clearing  house  on  the  day  of 
default  and  that  the  latter  shall  return  the  same  to  the 
members  clearing  them.  Similarly,  all  the  members  re- 
ceiving checks  from  the  defaulting  member  on  that  day 
are  required  to  surrender  the  same  to  said  defaulting 
member,  after  which  the  clearing  of  the  day  is  readjusted 
and  a  new  settlement  made  the  same  as  if  no  items  had 
been  sent  through  by  or  on  the  defaulting  member.  There 
have  been  cases,  however,  where  the  insolvency  of  a  bank 
was  known  before  clearing  hour,  whereupon  the  clearing- 
house committee  has  declined  to  allow  it  to  clear. 

The  association  is  in  no  way  responsible  for  the  bal- 
ances, except  in  so  far  as  they  are  actually  paid  into  the 
hands  of  the  manager,  and  then  its  responsibility  is 
strictly  limited  to  the  faithful  distribution  by  him  among 
the  creditor  banks  of  the  amounts  which  he  has  received. 
Should  any  loss  occur  while  the  balances  are  in  his  cus- 
tody the  associated  banks  must  bear  the  same  in  propor- 
tion to  the  other  expenses.  Any  error  in  the  exchanges 
and  claims  arising  from  the  return  of  checks,  or  from 
any  other  cause,  is  adjusted  directly  between  the  banks 
concerned. 

The  association  is  free  from  responsibility  for  the  con- 
tents of  sealed  bags  or  packages  received  at  the  clearing 


209 


National    Monetary     Commission 

house,  and  all  reclamations  for  errors  or  deficiencies  in  the 
contents  of  said  sealed  bags  or  packages  must  be  made 
by  I  o'clock  on  the  following  day  by  the  receiving  bank 
directly  against  the  bank  whose  mark  the  sealed  bag  or 
package  bears.  "All  checks,  drafts,  notes,  or  other  items 
in  the  exchanges  returned  as  not  good  or  missent  must 
be  returned  the  same  day  directly  to  the  bank  from  which 
they  were  received,  and  the  said  bank  must  immediately 
refund  to  the  bank  returning  the  same  the  amount  which 
it  had  received  through  the  clearing  house  for  the  said 
checks,  drafts,  notes,  or  other  items  so  returned  to  it  in 
lawful  money  or  clearing-house  certificates.  But  checks, 
drafts,  notes,  or  other  items  to  be  returned  for  informality 
of  indorsement  may,  after  being  certified  by  the  bank 
returning  them,  be  returned  through  the  exchanges  the  fol- 
lowing morning,  not  exceeding  $5,000  in  amount  to  any 
one  bank." 

An  amendment  to  this  section  was  made  on  June  4, 
1884,  providing  that  in  case  of  the  refusal  or  inability  of 
any  bank  to  refund  promptly  to  the  bank  presenting 
items  not  good,  the  bank  holding  them  may  report  the 
amount  of  the  same  to  the  manager,  whose  duty  it  shall 
be,  with  the  approval  of  the  clearing-house  committee, 
to  take  from  the  settling  sheet  of  both  banks  the  amount 
of  such  items  and  readjust  the  clearing-house  statement 
and  declare  the  correct  balance,  in  conformity  with  the 
change  so  made,  provided  such  report  is  given  to  the 
manager  before  i  o'clock  of  the  same  day. 

All  checks,  notes,  drafts,  and  bills  of  exchange,  when 
certified  by  the  banks  on  the  previous  day,  are  considered 


Clearing-House      Methods 

proper  matter  for  clearing.  Also,  for  the  convenience  of 
members,  various  kinds  of  money  orders,  though  not  au- 
thorized by  the  association,  are  accepted  through  the 
exchanges. 

Clearing  items  with  restricted  indorsements  are  pro- 
hibited by  a  resolution  adopted  June  4,  1896,  as  follows: 

Resolved,  That  on  and  after  the  ist  day  of  June,  i8g6,  members  of  this 
association  shall  not  send  through  the  exchanges  any  checks,  sight  drafts, 
notes,  bills  of  exchange,  or  other  items  having  thereon  any  qualified  or 
restrictive  indorsements,  such  as  "For  collection"  or  "For  account  of"  or 
"Pay  any  bank  or  banker,  or  order"  or  similar  indorsements,  unless  all 
indorsements  thereon  are  guaranteed  by  the  bank,  member  of  the  associa- 
tion, sending  such  checks,  drafts,  notes,  bills  of  exchange,  or  other  items. 

In  response  to  many  inquiries  as  to  what  indorse- 
ments are  considered  restrictive  or  qualified  under  the 
above  resolution,  the  clearing-house  committee  replied 
that  though  in  its  opinion  the  forms  "For  deposit"  and 
"For  deposit  to  the  credit  of"  do  not  fall  under  the  class 
of  indorsements  within  the  purview  of  the  clearing-house 
resolution,  they  are  to  a  certain  extent  considered  restrict- 
ive when  followed  by  other  indorsements,  and  that  inas- 
much as  the  clearing  houses  of  several  other  cities  have 
decided  not  to  accept  the  indorsements  "For  deposit"  or 
"For  deposit  to  the  credit  of,"  and  decline  to  pay  any 
item  with  other  than  a  plain  indorsement  thereon,  mem- 
bers of  the  association  should  request  their  correspond- 
ents and  depositors  to  use  the  following  form :  "  Pay 

— - - Bank,  or  order,  "  which,  if  used,  would  pre- 
vent delay  and  possible  loss  in  the  collection  of  checks  and 
other  items. 

The  expenses  of  the  association  have  not  always  been 
borne  by  the  members  in  the  same  proportion.     Section 


National    Monetary     Commission 

22  of  the  constitution,  as  originally  adopted  June  6,  1854, 
was  as  follows: 

The  expenses  of  the  clearing  house,  not  including  the  expense  of  printing 
for  the  several  banks  (which  last-mentioned  expense  shall  be  apportioned 
equally)  shall  be  borne  and  paid  by  the  several  banks  belonging  to  the  asso- 
ciation, according  to  their  respective  capitals,  as  follows:  Banks  having 
capitals  of  less  than  $500,000  shall  pay  $100  each  annually.  Banks  having 
capital  of  less  than  $1,000,000,  and  not  less  than  $500,000,  shall  pay  $200 
each  annually  Banks  having  capitals  of  $1,000,000  and  over  shall  pay 
$300  each  annually.  And  in  the  same  proportion  if  more  funds  are  neces- 
sary. 

In  1 864  the  constitution  was  referred  to  a  committee  of 
five  members  for  amendment  and  revision.  In  due  time 
they  reported  the  changes  they  had  made,  and  on  Janu- 
ary 24,  1865,  the  constitution  was  adopted  as  amended. 
It  appears  that  prior  to  that  time  the  above  section  was 
in  force,  requiring  that  members  be  assessed  for  expenses 
in  proportion  to  capital,  but  that  the  change  essentially 
to  the  present  plan  was  then  introduced. 

Prior  to  1890  no  charge  was  made  upon  nonmembers 
clearing,  but  on  October  14  of  that  year  a  resolution  was 
passed,  fixing  an  annual  assessment  of  $200  upon  each 
nonmember.  On  December  21,  1896,  an  amendment  was 
made  to  this  resolution  changing  such  assessment  from 
$200  to  $500.  In  the  latter  part  of  1903  a  further  amend- 
ment was  made  to  this  resolution,  to  take  effect  January  i, 
1904,  stating  that  on  and  after  that  date  every  nonmember 
sending  its  exchanges  through  a  member  of  the  clearing 
house  should  pay  to  the  association  the  sum  of  $1,000  an- 
nually, at  which  figure  it  still  stands.  Original  members 
paid  no  admission  fee. 

Since  the  revision  of  1865  the  printing  expenses  have 
been  divided  equally,  and  each  bank  has  paid  an  annual 


Clearing-House      Methods 

assessment  of  $200,  and,  in  addition,  its  portion  of  any 
other  sum  necessary  rated  on  the  amount  of  exchanges 
which  it  has  brought  to  the  clearing  house  during  the  pre- 
ceding year.  The  proportions  are  made  out  from  the 
records  at  the  clearing  house,  after  deducting  the  fixed 
annual  assessment  upon  nonmembers  and  members  and 
rents  due  the  association. 

There  is  another  important  feature  entering  into  the 
element  of  expenses  which  must  not  be  overlooked.  In 
associations  where  the  clearing  house  is  rented  property 
it  is  comparatively  easy,  in  fixing  upon  newly  elected 
members  their  proportionate  share  of  the  current  expenses, 
to  do  justice  to  all  concerned.  But  in  New  York  the  situa- 
tion is  unique.  The  association  owns  its  own  clearing 
house,  for  the  erection  of  which  a  heavy  draft  was  made 
upon  the  members.  Clearly,  therefore,  banks  subse- 
quently joining  should  in  some  way  render  to  the  other 
members  a  just  compensation  for  the  privileges  they  ac- 
quire. 

Such  compensation  is  duly  provided  for  in  the  following 
plan:  Preliminary  to  the  erection  of  a  clearing  house  9,000 
shares  were  issued — 8,975  iii  the  name  of  the  president  of 
the  clearing-house  association  and  25  in  the  names  of  the 
five  directors  of  the  Clearing  House  Building  Company, 
who  held  the  same  in  trust.  Certificates  to  the  value  of 
the  shares  were  then  issued  to  the  banks  in  proportion  to 
their  respective  capital  and  surplus,  and  they  in  turn  ad- 
vanced the  money  for  the  erection  of  the  clearing  house. 
Each  bank  advanced  an  amount  of  money  equal  to  the 
face  value  of  the  certificates  it  held.     This  was  done  under 


National    M  o  7i  e  t  a?'  y     Commission 

an  agreement  that  it  should  receive  a  stipulated  rate  of 
interest  on  its  certificates,  such  interest  to  be  raised  by 
assessment  upon  the  members  according  to  capital.  These 
certificates  are  not  transferrable  ^o  long  as  the  holder  is  a 
member  of  the  association,  but  if  at  any  time  it  should 
cease  to  be  a  member  the  association  is  given  the  prefer- 
ence in  their  purchase. 

The  fines  collected  are  applied  to  the  reduction  of  the 
expenses.  The  following  table  shows  the  amounts  of  fines 
for  each  year  from  1885  to  1908,  and  will  be  of  interest: 

1885 $1,015 

1886 1, 002 

1887. 1, 422 

1888 . 1,398 

1 889 '- 1, 121 

1890 1,046 

1891 885 

1892 749 

1893 989 

1894 538 

1895 521 

1896 535 

1897 542 

1898 407 

1899 562 

1900 362 

1901 338 

1902 335 

1903 296 

1904 280 

1905 397 

1 906 589 

1907 650 

1 908 563 

The  maximum  for  this  period,  $1,422,   which  is  also 

the  maximum  for  the  whole  history  of  the  clearing  house, 

was  attained  in  1887,  and  the  minimum  in  1904.     It  will 

be  noted  that  the  decline  was  nearly  uniform  between 

214 


Clearing-House      Methods 

1887  and  1904.  The  falling  off  from  year  to  year  has 
been  due  in  the  main  to  improvement  in  the  discipline 
of  the  clerks,  and  the  increase  in  the  last  few  years  has 
undoubtedly  been  brought  about  by  the  largely  increased 
volume  of  business. 

The  following  gives  the  scale  of  fines  in  force  at  the 
clearing  house: 

Forty-five  minutes  from  the  hour  of  commencing — 
viz,  10  o'clock — will  be  allowed  for  a  proof.  For  all 
errors  remaining  undiscovered  at  11. 15  o'clock  the  fines 
will  be  doubled,  and  at  12  o'clock  quadrupled. 

1.  All  errors  on  the  credit  side  of  the  settling  clerk's 
statement  (i.  e.,  in  the  amount  brought)  whether  of 
footing  or  entry,  and  all  errors  causing  disagreement 
between  the  credit  entries,  the  check  tickets,  and  the 
exchange  slips,  each  $3. 

2.  Errors  in  making  the  debit  (i.  e.,  amount  received) 
entries,  each  $2. 

3.  Errors  in  tickets  reported  to  the  clearing  house, 
causing  disagreement  between  the  balances  and  aggre- 
gate, each  $2. 

4.  Errors  in  footing  the  amount  received,  $1, 

5.  Disorderly  conduct  of  the  settling  or  delivery  clerk 
at  the  clearing  house  or  disregard  of  the  manager's  in- 
structions, each  offense,  $2. 

6.  Settling  or  delivery  clerk  failing  to  attend  punctually 
with  statements  and  tickets  complete,  at  the  morning 
exchanges,  each  $2. 

7.  Debtor  banks  failing  to  appear  to  pay  their  bal- 
ances before  half  past  i  o'clock,  $3. 


215 


National    M  o  n  et  ar  y     Commission 

8.  Errors  in  delivery  or  receipt  of  exchanges,  each  $i. 

It  remains  in  this  connection  to  give  a  table  of  figures 
sho\ving  the  clearings  for  each  year,  from  the  estabUsh- 
ment  of  the  clearing  house  in  1853  to  the  present  time; 
also  the  balances  for  the  same  period,  with  other  im- 
p)ortant  statistics: 


216 


CLEARINGS  FOR  55  YEARS. 

Fiscal  Years 

Xo.  of 
Membere. 

ExDrNG 

Sept.  zr,. 

Clearing  for  Year. 

Dailv  Clearings. 

lSo4 

.50 

$5,  7-50.4.55.  9S:.  06 

$19, 104,  -504.  94 

18.55 

48 

5. 362,  912, 09S.  38 

17.  412.  052.  27 

1856 

.50 

6,  906.  213.  328.  47 

22.  278. 107.  51 

1857 

.50 

8.  3.33.  226.  718.  06 

26  968.  371.  26 

18.58 

46 

4.  7-56.  664.  386.  09 

15.  393.  7.35.  88 

1859 

47 

6.448.005.9.56.01 

20.  867.  333. 19 

1860 

.50 

7.231.143.0.56.69 

23,  401,  757.  47 

1861 

.50 

5.  915.  742.  7.5.S.  05 

19,  269.  .520.  .38 

1862 

.50 

6.  871.  443,  .591.  20 

22.  237,  681.  .53 

1863 

50 

14.  S67.  .597.  848.  60 

48.  428.  657.  49 

1864 

49 

24.  097, 196.  6.55.  92 

77,  984.  4.55.  20 

1865 

55 

26.  032.  384.  341.  89 

84,  796.  040.  20 

1866 

.58 

2S.  717. 146.  914.  09 

93.  -541. 195. 16 

1867 

.58 

2S.  675. 159.  472.  20 

93. 101. 167. 11 

1868 

59 

28.  484.  288.  636.  92 

92. 182. 163.  87 

1869 

59 

37.  407.  028.  986.  55 

121.  451.  392.  81 

1870 

61 

27.  804,  .539.  405.  75 

90,  274.  478.  59 

1871 

62 

29.  300.  986,  682.  21 

95. 133.  073.  64 

1872 

61 

33.  844.  369.  .568.  39 

109.  884.  316.  78 

1873 

59 

35.  461,  0.52.  82-5.  70 

115,  885.  793.  .58 

1S74 

59 

22.  8.55.  927.  636.  26 

74.  692.  .573.  97 

1S75 

59 

25.  061.  237.  902.  09 

81.  899.  470.  26 

1S76 

59 

21.  .597.  274.  247.  04 

70.  349.  427.  51 

1877 

58 

23.  2S9.  243.  701.  09 

76.  3.58. 176.  06 

1878 

57 

22.  -508.  438.  441.  75 

73.  785.  746.  -54 

1879 

59 

25. 178,  770.  690.  .50 

82.  015.  -539.  70 

1880 

59 

37, 182, 128.  621.  09 

121. 510.  224.  25 

1881 

61 

48,  .565.  818.  212.  31 

159,  232, 190.  86 

1882 

62 

46.  .552.  846. 161.  34 

151.  637.  93-5.  38 

1883 

64 

40.  293. 16-5.  257.  65 

132,  -543.  306.  76 

1884 

62 

34.  092.  037.  337.  78 

111,  048.  981.  .55 

1885 

64 

25.  2-50,  791.  439.  90 

82.  789.  480.  38 

1886 

64 

33.  374. 682.  216.  48 

109.  067.  -588.  94 

1887 

65 

34.  S72.  848.  7S5.  90 

114. 337.  209. 13 

1888 

64 

30.  863.  686,  609.  21 

101.192.41-5.11 

1889 

64 

34.  796.  465.  528.  87 

114.  S39.  S20.  23 

1890 

65 

37.  G60.  686.  571.  76 

123. 074. 139. 12 

1891 

64 

34.  053,  698.  770.  04 

111.651.471.39 

1892 

65 

36.  279.  905.  235.  -59 

118,  -561,  781.  82 

1893 

65 

34.  421.  380.  869.  .50 

113. 978. 082.  31 

1894 

66 

24.  230. 145.  367.  70 

79.  704.  425.  -55 

1895 

67 

2S.  264.  379. 126.  23 

92.  670.  095.  49 

1896 

66 

29,  3.50.  894.  883.  87 

96.  232.  442.  24 

1897 

66 

31.  337,  760.  947.  98 

103.  424.  9-53.  62 

1898 

65 

39,8-53.413.947.74 

131,  .529.418.  97 

1899 

64 

57,  368.  230,  771.  33 

189.961.029.04 

1900 

64 

51.  964.  .588.  -564.  31 

170,  936. 146.  61 

1901 

62 

77. 020. 672. 493.  65 

2-54, 193.  638.  59 

1902 

60 

74.  7-53. 189.  435.  86 

245.  898.  649.  46 

1903 

57 

70.  833.  655.  940.  29 

233.00-5,447.17 

1904 

54 

-59.  672.  796.  804.  41 

195.648.514.11 

1905 

54 

91,  879,  318,  369.  00 

302.  234,  .599.  89 

1906 

55 

103.751.100.091.25 

342.  422.  772.  .^^7 

1907 

.54 

95.  315.  421.  237.  96 

313.  .537.  .569.  86 

1908 

50 

73,  630.  971, 913. 18 

241,  413.  022.  m 

Totals, 

$1, 930, 248. 133,  349. 14 

$114,  765,  927.  42 

;ao4o — lo- 


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r:£f 


Clearing-House      Methods 

dation.  As  a  result,  the  second  year  shows  a  reduction 
in  the  total  business  of  the  clearing  house,  followed  by 
a  gradual  increase,  till  the  panic  of  1857.  The  decline 
in  the  volume  of  exchanges  was  nearly  50  per  cent  from 
1857-58,  as  before  stated,  biit  by  the  following  year  the 
recover^'  was  nearly  complete,  due  in  a  large  measiu-e 
to  the  passage  bv  Congress  of  the  national  currency  act, 
which  immediately  expanded  the  circulation.  At  this 
point  came  another  change,  and  there  was  a  shght  de- 
crease in  the  clearings  until  1869.  This  year  was  fol- 
lowed bv  an  increase  to  nearly  $9,000,000,000  above 
the  record  of  any  previous  year. 

A  gradual  decline  set  in  again,  from  which  the  busi- 
ness of  the  clearing  house  did  not  recover  fully  for  the 
next  twelve  vears.  Meanwhile  the  clearings  had  gone 
down  in  1S76  nearly  5 16.000.000,000  below  the  total  for 
1869.  The  resumption  of  specie  payments  by  the  United 
States  Government  on  the  ist  of  Januarv*,  1S79,  wrought 
a  salutarv*  change  in  the  business  and  commercial  interests 
of  the  countr\",  and  the  consequent  effect  upon  the  busi- 
ness of  the  clearing  house  was  wonderful.  For  the  year 
1S7S  the  total  exchanges  of  $22,500,000,000.  in  round 
figures,  increased  to  the  prodigious  sum  of  $48,565,000,000 
for  1 88 1,  or  over  100  per  cent  in  three  years,  when  the 
high-water  mark  was  reached  in  the  association's  history, 
the  exchanges  for  that  year  running  far  above  the  record 
for  any  pre\"ious  year. 

The  failiu-e  of  two  or  three  banks  in  1884,  notably 
the  Marine  Bank  and  the  Wall  Street  Bank,  produced 
a   condiderable   reduction   in   the   amount   of   clearings. 


National    Monetary     Commission 

but  the  increase  was  rapid  after  1885  until  1892,  when 
the  volume  of  exchanges  was  again  reduced,  owing  to 
the  general  stagnation  in  business  and  trade.  In  1896 
the  volume  of  business  was  nearly  twenty  billions  of 
dollars  below  the  record  of  1881.  In  considering  this 
decline,  it  must  not  be  forgotten  that  the  establishment 
of  the  Stock  Exchange  Clearing  House  in  1892  has  de- 
tracted very  greatly  from  the  volume  of  the  exchanges. 
It  has  been  estimated  that  to  this  fact  is  due  a  reduction 
of  from  $40,000,000  to  $60,000,000  a  day. 

The  figures  of  1881  continued  as  the  high- water  mark 
for  annual  clearings  until  1899,  when  they  suddenly 
leaped  from  $39,000,000,000  in  1898  to  $57,000,000,000, 
an  increase  of  nearly  50  per  cent  in  a  single  year,  and  in 
1 90 1  to  $77,000,000,000,  a  further  increase  of  nearly  40 
per  cent.  The  next  three  years,  however,  showed  declines, 
and  in  1904  the  clearings  had  again  fallen  to  something 
over  $59,000,000,000.  Following  that  year  the  United 
States  entered  upon  a  period  of  prosperity  far  greater  than 
had  ever  before  been  experienced,  and  in  1906  the  clearings 
reached  the  unprecedented  total  of  $103,754,100,000,  thus 
making  it  the  banner  year  in  the  history  of  the  association 
and  showing  average  daily  clearings  of  over  $342,000,000, 
By  1908,  the  year  in  which  the  effects  of  the  panic  of  the 
previous  year  were  felt,  the  clearings  had  dropped  back  to 
$73,000,000,000,  thus  indicating  as  strikingly  as  any  figures 
could  the  extent  of  the  retrenchment  in  business  that 
occurred  in  the  country  during  and  following  the  panic. 

The  variation  in  the  ratio  of  balances  to  clearings  dur- 
ing this  period  has  not  been,  as  a  rule,  abnormal.     The 


BALANCES  PAID  IN  CASH  FOR  55  YEARS 

Fiscal 

Balances 

Yeaes 
Ending 

No.  of 
Members. 

Balances  for  Year. 

Average  Daily 
Balances. 

to 
Clearings. 

Sept.  30. 

Per  Cent. 

1854 

50 

$297,  411,  493.  69 

$988,  078.  06 

51' 

1855 

48 

289 

694 

137.  14 

940 

565.  38 

5''" 

1856 

50 

334 

714 

489.  33 

1,079 

724.  16 

48.3 

1857 

50 

365 

313 

901.  69 

1,182 

245.  64 

4.-« 

1858 

46 

314 

238 

910.  60 

1,016 

954.  40 

ge,6 

1859 

47 

363 

984 

682.  56 

1,177 

943.  96 

564 

1860 

50 

380 

693 

438.  37 

1,232 

017.  60 

526 

1861 

50 

353 

383 

944.  41 

1,151 

087.  77 

597 

1862 

50 

415 

530 

331.  46 

1,344 

758.  35 

g04 

1863 

50 

677 

626 

482.  61 

2,207 

252.  39 

455 

1864 

49 

885 

719 

204.  93 

2,866 

405. 19 

367 

1865 

55 

1,  035 

765 

107.  68 

3,373 

827.  71 

397 

1866 

58 

066 

135 

106.  35 

3,472 

752.  79 

3"' 

1867 

58 

144 

963 

451.  15 

3,717 

413.  80 

399 

1868 

59 

125 

455 

236.  68 

3,642 

249.  95 

395 

1869 

59 

\ 

120 

318 

307.  87 

3,637 

397.  10 

299 

1870 

61 

036 

484 

821. 79 

3,365 

210.  46 

3" 

1871 

62 

209 

721 

029.  47 

3,927 

665.  68 

412 

1872 

61 

428 

582 

707.  53 

4,638 

255.  54 

422 

1873 

59 

474 

508 

024.  95 

4,818 

653.  67 

415 

1874 

59 

286 

753 

176.  12 

4,205 

075.  73 

562 

1875 

59 

408 

608 

776.  68 

4,603 

296.  65 

562 

1876 

59 

295 

042 

028.  82 

4,218 

377.  94 

599 

1877 

58 

373 

996 

301.  68 

4,504 

905.  90 

589 

1878 

57 

.307 

843 

857.  24 

4,273 

999.  53 

58I 

1879 

59 

400 

111 

062.  86 

4,560 

622.  35 

556 

1880 

59 

516 

538 

631.  29 

4,956 

008.  60 

407 

1881 

61 

776 

018 

161.  58 

5,  823 

010.  36 

366 

1882 

62 

595 

000 

245.  27 

5,  195 

440.  54 

342 

1883 

64 

568 

983 

196.  15 

5,161 

128.  93 

389 

1884 

62 

524 

930 

993.  93 

4,967 

201.  93 

447 

1885 

64 

295 

355 

251.  89 

4,247 

069.  39 

5'^ 

1886 

64 

519 

565 

385.  22 

4,  965 

899.  95 

455 

1887 

65 

569 

626 

324.  77 

5,146 

315.  82 

449 

1888 

64 

570 

198 

527.  78 

5,148 

191.  89 

5™ 

1889 

64 

757 

637 

473.  47 

5,800 

783.  74 

505 

1890 

65 

753 

040 

145.  23 

5,728 

889.  36 

465 

1891 

64 

584 

635 

499.  88 

5, 195 

526.  21 

465 

1892 

65 

861 

500 

574.  56 

6,  083 

335.  18 

513 

1893 

65 

696 

207 

175.  52 

5,616 

580.  05 

492 

1894 

66 

585 

241 

633.  52 

5,214 

610.  63 

Qr,i 

1895 

G7 

896 

574 

349.  11 

6,218 

276.  55 

6"' 

1896 

66 

843 

289 

238.  66 

6,043 

571.  27 

628 

1897 

66 

908 

901 

897.  67 

6,300 

006.  26 

g(U 

1898 

65 

2 

338 

529 

016.  43 

7,  717 

917.  54 

587 

1899 

64 

3 

085 

971 

370.  53 

10,218 

448.  24 

537 

1900 

64 

2 

730 

441 

810.  27 

8,981 

716.48 

525 

1901 

62 

3 

515 

037 

741.  05 

11,600 

784.  62 

456 

1902 

60 

3 

377 

504 

072.  11 

11,110 

210.76 

451 

1903 

57 

3 

315 

516 

487.  48 

10, 90G 

304.  23 

468 

1904 

54 

3 

]05 

858 

575.  60 

10, 183 

142.  87 

520 

1905 

54 

3 

953 

875 

974.  80 

13, 006 

170.  97 

433 

1906 

55 

3 

832 

621 

023.  87 

12, 648 

914.  27 

369 

1907 

54 

3 

813 

926 

108.  35 

12, 545 

809.  56 

400 

1908 

50 

3 

409 

632 

271.41 

11, 179 

122.20 
942.  45 

463 

464 

TotaJp 

, 

$89 

694 

759 

171.  06 

.?5,  332 

National    Monetary     Commission 

maximum  was  reached  in  1895,  when  the  per  cent  was 
6.71,  and  the  minimum  in  1869,  when  it  reached  the  low 
mark  of  2.99  per  cent. 

The  largest  transactions  for  any  one  day  since  the  clear- 
ing house  was  organized  were  on  January  3,  1906,  when 
they  reached  the  prodigious  sum  of  $686,844,890.58. 
The  smallest  transaction  for  any  one  day  was  on  October 
30,  1857,  amounting  to  $8,357,394.82. 

The  largest  total  balance  resulting  from  any  one 
day's  exchanges  was  on  October  3,  1905,  amounting  to 
$42,331,709.02.  The  smallest  total  balance  on  record 
was  on  October  30,  1857,  amounting  to  $489,720.32. 

The  greatest  amount  of  exchanges  brought  to  the  clear- 
ing house  by  any  one  bank  was  on  January  3,  1906, 
amounting  to  $111,833,131.31.  The  greatest  amount  of 
exchanges  taken  away  from,  the  clearing  house  by  any 
one  bank  was  on  February  28,  1905,  $125,954,496.61. 

The  largest  balance  ever  paid  by  the  clearing  house  to 
any  one  bank  was  on  September  30,  1905,  $27,355,290.85. 
The  largest  balance  ever  paid  by  a  single  institution  to 
the  clearing  house  was  paid  on  October  3,  1905,  and 
amounted  to  $37,661,685.  The  smallest  balance  ever 
paid  by  the  clearing  house  to  any  one  bank  was  on  De- 
cember 16,  1873,  amounting  to  10  cents.  The  smallest 
balance  ever  paid  to  the  clearing  house  by  any  one  bank 
was  on  September  22,  1862,  amounting  to  i  cent. 

Such  is  the  history  of  the  New  York  clearing  house. 
Standing  foremost  among  the  financial  institutions  of  the 
country,  we  may  well  forecast  for  it  a  future  of  still  greater 
importance  to  the  business  world. 


Chapter  XV. 

THE   CLEARING-HOUSE   ASSOCIATION   OF   THE 
BANKS   OF   PHILADELPHIA. 

EARIvY  HISTORY RUNNERS'  EXCHANGE THE  MORNING  EX- 
CHANGE— GOIvD  DEPOSITORY — CI.EARING  -  HOUSE  DUE- 
BILI^S — SETTLEMENTS  WITHOUT  THE  USE  OF  MONEY — 
COMPARISON  OF  BANK  STATEMENTS — COLLATERAL  SE- 
CURITY— ASSESSMENT  OF  EXPENSES — ADMISSION  OF  NEW 
MEMBERS — PLAN  OF  ADMINISTRATION — LIST  OF  PRESI- 
DENTS— FAILURES  AND  RESULTING  LITIGATION. 

The  clearing-house  association  of  Philadelphia  is  a  vol- 
untary unincorporated  association  of  certain  banks  of 
that  city,  its  chief  object  being  to  effect,  at  a  central  point 
called  the  "  clearing  house,"  the  daily  exchanges  of  items 
between  the  associated  banks.  It  was  established  in 
1858,  five  years  after  that  of  New  York,  and  with  essen- 
tially the  same  rules  and  by-laws.  Prior  to  this,  the 
cashiers  met  at  a  central  point  and  adjusted  the  balances 
in  the  morning  exchanges,  which  were  afterwards  collected 
in  cash  by  the  runners  of  the  creditor  banks  at  the  counters 
of  the  debtor  banks.  In  this  exchange  were  included  all 
items  received  in  the  morning  mail. 

The  banks  of  Philadelphia  are  not  so  concentrated  in 
location  as  are  those  of  New  York  or  Boston,  and  this  very 
greatly  enhanced  the  labor  of  the  runners,  who  had  to 
make  the  interchange  of  items.  They  called  those  banks 
most  remote  from  the  banking  center  "the  extremities," 

223 


National    Monetary     Commission 

and  it  was  indeed  a  most  unenviable  task  to  make  the 
rounds  of  these  daily.  Accordingly,  the  feeling  early  pre- 
vailed that  the  exchanges  would  be  greatly  facilitated  if 
only  the  items  of  the  previous  day  were  included  in  that 
day's  exchange.  In  1862,  only  four  years  after  the  estab- 
lishment of  the  clearing  house,  William  H.  Rhawn,  who 
for  a  long  time  was  president  of  the  National  Bank  of 
the  Republic,  proposed  the  introduction  of  a  second  ex- 
change, and  after  a  year's  discussion  by  the  clearing-house 
committee  it  was  adopted.  This  was  called  the  "  runners' 
exchange,"  and  it  was  so  named  because  it  was  in  a  large 
measure  a  substitute  for  the  work  previously  performed 
by  the  runners. 

This  runners'  exchange  included  all  notes  and  accept- 
ances due  that  day  and  all  items  in  the  morning  mail 
made  payable  at  the  banks.  Through  it  were  nearly 
always  returned  the  items  not  good  that  were  included  in 
the  morning  exchange. 

The  morning  exchange  took  place  at  8.30  o'clock  and 
included  only  the  items  of  the  previous  day.  The  method 
was  essentially  the  same  as  that  of  New  York,  and  differed 
from  that  of  Boston  only  in  the  requirement  of  a  receipt 
for  packages  as  delivered.  The  runners'  exchange  was 
fixed  at  1 1.30,  so  that  the  clerks  from  the  debtor  banks  at 
the  morning  exchange  could  pay  their  debts  before  the 
runners'  exchange,  and  the  clerks  from  creditor  banks 
could  receive  the  amounts  of  their  credits  after  the  ex 
change. 

The  method  of  the  runners'  exchange  differed  somewhat 
from  that  in  the  morning  exchange.     Only  one  clerk  from 


224 


Clearing-House      Methods 

each  bank  was  employed,  whereas  two  were  required  in 
the  earher  clearings.  Each  clerk  upon  his  arrival  first 
deposited  the  items  which  he  held  on  the  other  banks  and 
then  took  his  position  at  the  desk  of  his  own  bank. 
Promptly  at  1 1.30  o'clock  each  clerk  began  to  list  and  add 
the  items  deposited  for  his  bank.  The  balances  were 
then  adjusted  by  duebills  or  checks,  after  which  the 
clerks  repaired  to  their  several  banks. 

The  method  of  settling  balances  at  these  two  exchanges 
differed  from  that  pursued  in  various  other  clearing-house 
associations.  The  Farmers  and  Mechanics'  National  Bank 
received  in  special  trust  such  gold  coin  as  any  of  the 
members  voluntarily  deposited  with  it  for  safe-keeping 
for  clearing-house  purposes.  Against  such  deposits  cer- 
tificates in  denominations  of  $5,000  and  $10,000  were 
issued  to  the  depositing  banks,  signed  by  the  manager  of 
the  clearing-house  association  or  by  his  assistant,  or  by 
some  other  person  designated  by  the  association  for  the 
purpose,  and  countersigned  by  the  Farmers  and  Mechanics' 
National  Bank.  These  certificates  were  negotiable  only 
among  the  associated  banks,  and  were  receivable  by  them 
in  the  payment  of  balances  at  the  clearing  house  for  the 
morning  exchange.  The  coin  thus  placed  on  deposit  was 
the  absolute  property  of  such  of  the  associated  banks  as 
were  for  the  time  the  holders  of  the  certificates,  and  was 
held  by  the  depository  subject  to  withdrawal  on  presenta- 
tion of  the  properly  indorsed  certificate  at  any  time  during 
banking  hours. 

Hence  it  will  be  seen  that  these  certificates  were  issued 
under  about  the  same  conditions  as  are  the  clearing-house 


225 


National     Monetary     C  ommi  s  s  io 


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Clearing-House      Methods 

certificates  of  New  York  and  other  cities,  with  the  excep- 
tion that  the  gold  coin  deposited  as  security  therefor  was 
placed  in  the  vaults  of  the  Farmers  and  Mechanics'  Na- 
tional Bank  instead  of  in  the  clearing  house,  which  at  that 
time  had  no  adequate  facilities  for  the  handling  of  the 
same.  This  arrangement  has  since  been  changed,  and  the 
gold  is  now  deposited  in  the  vaults  of  the  clearing  house, 
in  the  same  manner  as  at  New  York. 

The  runners'  exchange  has  since  been  abolished  by 
constitutional  amendment,  and  there  is  now  but  one 
exchange  a  day,  which  takes  place  at  lo  o'clock  in  the 
morning. 

There  is  also  a  constitutional  provision  that  the  mana- 
ger of  the  clearing  house  shall  receive  the  certificates 
issued  by  the  Treasurer  of  the  United  States  for  clearing- 
house purposes  under  any  act  of  Congress,  in  settlement 
of  balances  due  from  the  morning  exchange.  These 
certificates,  it  is  provided,  must  be  indorsed,  "Pay  to 
the  order  of  a  bank,  member  of  the  clearing-house  asso- 
ciation of  the  banks  of  Philadelphia."  The  certificates 
are  issued  in  denominations  of  $5,000  and  $10,000.  Inas- 
much as  these  certificates  are  issued  only  in  the  large 
denominations  above  mentioned,  some  other  medium 
must  be  employed  in  the  payment  of  balances  and  parts 
of  balances  under  $5,000.  This  is  done  with  clearing- 
house duebills  (see  form  on  another  page)  issued  by 
the  debtor  banks  to  the  clearing-house  manager,  who 
deposits  them  in  the  clearing-house  depository  bank, 
which,  in  turn,  sends  them  through  the  exchanges  against 
the  debtor  banks  on  the  following  day.     These  clearing- 


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National     Monetary     Commission 


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228 


Clearing-House      Methods 

house  duebills  can  be  used  only  on  the  day  of  issue,  and 
are  payable  only  in  the  exchanges  through  the  clearing- 
house the  day  after  issue. 

The  manager  issues  to  creditor  banks  manager's 
checks  on  the  clearing-house  depository  bank  for  the 
amount  of  their  credit,  under  $5,000,  being  the  amount 
of  the  duebills  deposited  with  that  bank.  Banks  are 
required  to  give  duebills  to  the  other  banks  upon  demand, 
in  payment  of  items  at  their  counters,  where  the  amount 
exceeds  $100.  They  are  also  required  to  furnish  to  each 
other  and  to  the  manager  of  the  clearing  house  the  names 
and  signatures  of  all  persons  authorized  to  sign  or  coun- 
tersign duebills. 

By  this  means  the  balances  are  settled  from  day  to 
day  without  the  use  of  a  single  penny  of  money.  The 
risk  attending  the  transfer  of  large  sums  of  money 
through  the  streets  of  the  city  is  obviated,  and  the  greatest 
possible  ease  is  secured  in  the  receipt  and  disbursement 
of  balances. 

The  provision  of  the  constitution  regarding  state- 
ments is  as  follows:  "  Each  bank  shall  furnish  on  Mondays, 
for  publication,  a  statement  of  its  average  condition  for 
the  previous  week,  after  deducting  the  daily  exchanges 
from  the  gross  figures  of  the  preceding  day.  To  each 
statement  shall  be  appended  the  state  of  the  account  of 
the  bank  with  New  York  on  the  day  of  report.  These 
statements  shall  be  certified  to  by  the  president,  cashier, 
or  assistant  cashier." 

Each  bank  is  also  required  to  furnish  a  daily  state- 
ment to  the  manager,  but  not  for  publication,  certified 


229 


National    Monetary     Commission 


26  DAILY    STATEMENT 

of  The    Cejntral     National     Bank, 
at  the  close  of  business ..^,^,._.,„  .,_„„_„.  rf»v»«  >»>  >  ►^^. .  > .190 
This  Statement, is  to  be  sent  with  the  Exchange!^,  to  the  Clearing-house, 
at  or  before  10  o'clock,  A.  M.,  on  the  following  business  day. 


Loans  and  Discounts,  including  all  Interest 
Bearing  Securities  of  the  United  States_ 


Individual  Deposits  ^^^.^r.-v.- — .>.^, . 

Banks'  and  Bankers'  Deposits.* ,,_ 

Total  Deposits...^.  ...«,.  ^ ..  ^»- 

J.«ss  Exchanges    for   Clearing-house  dnd 

due  from  Banks  and  Bankers  (exchisive 

of  Reserve  .Agents),,,.,, ^^.^,,.4. 

Net  Deposits.  t_,-_  ,. ,  ,— . ^ 


U.  S.  Legal  Tender  Notes«^.  _^ 
L'.  S.  Treasury  Gold  Certificates. 
Clearing-house  Gold  Certificales 

Cash  Reserve  .r^^.  „, , , 

Due  by  Reserve  .\gents, ^.»,,„ 

Total  Reserve. ^___.,  .  . 


Circulation  „ 
National  Bank  Note.s, 


/  rrrtifif  thai-  the  nbore  stalemnit  is  correct  as  shorrn  h;/  the  honks  of 
Oic  Bank. 


General  liiu>kAiej>rr 


Form  of  D.uly  St.\tement  Employed  by  the  Banks  op 
Philadelphia. 


230 


AVERAGE 


BANKS 


No.  1  Philadelphia  National 

2  North  America 

3  Farm's  <fe  Mech's  National. 

6  Nat.  Bk.  of  N.  Liberties.. . 

7  Southwark  National ....... 

8  Kensington  National 

9  Penn  National 

10  Western  National -  . 

11  Manufacturers  Nat'l 

13  Girard  National, 

14  Tradesniens  National, 

18  Corn  Exchange  National:" 

19  Union  National , 

20  First  National 

21  Third  Natigaal 

23  Sixth  National 

25  Eighth  National 

26  Central  National 

28  National  Security 

29  Centennial  National 

30  Merchants'  National 

33  Ninth  National 

34  Tenth  National 

36  Northwestern  National.. . . 

37  Southwestern  National.. . . 

39  Fourth  Street  National .  .  . 

40  Market  Street  National .  .  . 

42  Quaker  City  National: 

43  Northern  National 

44  Franklin  National 

45  Textile  National.  . 

Total. 


Comparisons 


July  19th.. -..^ $16,068. 

"     20th. ,.,„..         23,924, 

"     21st..  „....^...  22.343.' 


w 

Averag 


TRUST    COMPANY 


LAND   TITLE    &  TRUST  CO 


Form  <\ 


(                   AVERAGE   CONDITION   OF    THE    BANKS    IN    PHILADELPHIA, 
For  the  Week  preceding  Monday,  July  36lh,  1909, 

At  rurninhrd  hy  JOHN  C.  BOVD.  Manager  PhilaJDl|<hi<i  CltBrios-haUM. 

B,.„. 

%zi- 

ifciS 

H"s. 

— 

C.„.„„ 

s 

i  m^;    : 

M 

U5e.D00 

II 

II 

S2J).7D2,000 
48fi!oO( 

ss;s 

'11 

•;<■£» 

1 

T„.. 

K2.225,00. 

.27..<M«.OO0 

»1.2..,0D0 

MS.750.0.0   .I33...2,M« 

.I...2.3.C00 

....2,..000 

288 

M>i»ih »i«.i)«e,irt  M          «i,oio.»mi                 J.i- 22,1    

^^Z. 

.,20..0I.120  70              «,7»3,5..  03 

WEEKLY  STATEMENT  FOR   TRUST  COMPAHIES. 
Average.  CoQdition  for  the  Week  preceding  Monday.  July  36lh,  1909. 

TRUST    COMPAMY 

C.„,., 

^ 

"•'££" 

-' 

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M.,.0.. 

„.2.,... 

i 

(To  tec  p.se  230.) 


Clearing-House      Methods 

by  the  general  bookkeeper.  Such  statement  is  to  be 
made  before  the  commencement  of  business  and  sent 
to  the  clearing  house  with  the  morning  exchanges. 
Thus  the  Philadelphia  association  is  more  rigid  even 
than  New  York  in  this  particular,  and,  indeed,  more 
exacting  than  any  other  clearing-house  association  in 
the  country.  In  many  cases,  especially  in  the  larger 
cities  of  the  country,  a  weekly  statement  is  required, 
but  in  no  city  except  Philadelphia  is  a  statement  re- 
quired oftener  than  once  a  week. 

Philadelphia  reports  eight  items,  while  New  York 
reports  but  seven.  Both  give  "capital  stock,"  "cir- 
culation," "loans  and  discounts,"  and  "deposits,"  but 
Philadelphia  differs  in  that  they  report  "lawful  money 
reserve"  in  one  item,  and  include  "due  from  banks," 
"due  to  banks,"  and  "percentage  of  reserve,"  which  are 
not  given  in  the  New  York  reports. 

In  addition  to  the  protection  afforded  each  member 
by  these  statements,  each  bank,  upon  becoming  a  mem- 
ber, is  required  to  deposit  collateral  with  the  clearing- 
house committee,  as  security  for  its  daily  settlements, 
in  the  following  proportion  to  capital ;  Banks  with  capitals 
of  $800,000  and  over,  10  per  cent.  Banks  with  capitals 
of  $500,000  and  under  $800,000,  14  per  cent;  but  not  to 
be  required  to  deposit  over  $80,000.  Banks  with  capitals 
of  $250,000  and  under  $500,000,  20  per  cent;  but  not  to 
be  required  to  deposit  over  $70,000.  Banks  with  capitals 
of  under  $250,000  shall  deposit  not  less  than  $50,000. 

The  rules  of  the  association  further  provide  that  if, 
after  any   bank  shall  have  become  a  member  of  the  asso- 


231 


National    Monetary     Commission 

ciation,  the  clearing-house  committee  shall  deem  the 
collaterals  deposited  by  such  bank  to  be  insufficient 
security  for  its  daily  transactions,  the  committee  may 
from  time  to  time  require  such  bank  to  deposit  additional 
collateral  security  therefor.  It  is  understood  by  all 
banks  making  such  deposits  that  they  alone  are  respon- 
sible for  any  loss  on  their  collaterals  deposited  resulting 
from  the  failure  to  make  demand  and  protest,  or  from 
any  other  neglect  or  omission  other  than  the  refusal  to 
take  such  reasonable  steps  as  may  have  been  previously 
requested  in  writing. 

In  case  of  default  by  any  member,  the  clearing-house 
committee  is  instructed  to  apply  their  deposit  of  collateral 
"  to  the  payment  of  any  balances  due  by  such  bank  at 
the  clearing  house  or  to  the  reimbursement  pro  rata  of 
the  several  banks  furnishing  any  such  balance,  and  the 
surplus,  if  any,  shall  be  held  by  the  committee  as  collateral 
security  for  any  indebtedness  of  such  defaulting  bank  to 
the  clearing-house  committee,  or  to  the  association  or 
any  of  its  members,  and  also  as  security  for  all  costs, 
expenses,  and  counsel  fees,  paid  by  the  clearing-house 
committee,  for  the  collection  of  the  security  representing 
the  deposit,  or  which  the  committee  may  be  compelled 
to  pay  by  reason  of  holding  the  same."  The  committee 
may  be  required  to  determine  the  time  when  exchanges 
or  deliveries  of  collateral  security  shall  be  made. 

The  constitution  further  provides  that — 

Bills  receivable  deposited  as  such  security  shall  in  no  case  be  received 
at  more  than  75  per  cent  of  their  face  value,  unless  accompanied  by  col- 
lateral security  of  greater  value,  when,  in  the  discretion  of  the  committee, 
such  bills  may  be  received  to  an  amount  not  exceeding  their  face  value. 
It  shall  be  the  privilege  of  each  bank  to  e?<amine  twice  a  year,  or  oftener, 

232 


Clearing-House      Methods 

at  its  option,  the  securities  in  the  custody  of  the  clearing-house  committee, 
deposited  by  it,  as  collateral  security,  to  compare  the  same  with  the  receipt 
given  by  the  committee,  and  if  found  correct,  to  execute  to  the  committee 
a  certificate  setting  forth  the  different  kinds  and  amounts  thereof,  and 
that  the  same  are  in  the  possession  and  custody  of  the  committee  at  the 
date  of  such  certificate.  Such  examination  may  be  made  by  an  officer  of 
such  bank  or  nonmember,  or  by  a  committee  of  directors  duly  appointed 
for  the  purpose. 

As  in  New  York  and  Boston,  the  expense  of  printing 
is  apportioned  equally;  but  while  other  associations  re- 
quire that  each  bank  shall  be  assessed  a  stated  sum  and 
pay  the  remainder  thereafter  in  proportion  to  its  ex- 
changes for  a  given  period,  the  Philadelphia  Association 
requires  that  all  such  expenses  shall  be  borne  by  the 
several  members,  according  to  capital,  as  follows:  Banks 
having  a  capital  of  less  than  $500,000  shall  pay  $100 
each  annually.  Banks  having  a  capital  of  $500,000  and 
less  than  $1,000,000  shall  pay  $200  each  annually.  Banks 
having  a  capital  of  $1,000,000  and  upward  shall  pay 
$300  annually,  and  in  the  same  proportion  if  more  funds 
become  necessary.  The  expenses  are  much  lower  than 
at  New  York,  Chicago,  or  Boston. 

The  fines,  amounting  to  from  $300  to  $400  annually, 
have  always  been  donated  to  the  Bank  Clerks'  Beneficial 
Association.  In  the  last  few  years  the  disorder  fines 
have  amounted  to  but  a  very  small  sum.  None  of  the 
fines  are  high  comparatively.  For  no  offense  is  it  greater 
than  $1  except  for  failure  to  attend  exchanges  promptly 
and  to  be  punctual  in  the  payment  of  debtor  balances, 
in  which  case  it  is  $2  for  each  offense. 

Banks  may  be  admitted  from  time  to  time  to  member- 
ship in  the  association,  but  the  requirements  are  more 
rigid  than  in  any  other  city.  Applications  must  be  made 
20040 — 10 16  233 


National    Monetary     Commission 

to  the  clearing-house  committee  and  upon  a  favorable 
report  by  them  to  the  association  the  applicant  may  be 
admitted  by  an  affirmative  vote  of  three-fourths  of  all 
the  members  and  by  paying  an  admission  fee  of  $10,000 
and  certifying  assent  to  the  articles  of  association.  In 
no  other  city  is  the  admission  fee  so  high,  and  in  only  a 
few  is  more  than  a  majority  vote  of  the  members  neces- 
sary for  admission. 

The  power  of  suspension  is  lodged  in  the  clearing- 
house committee,  but  no  suspension  can  take  place  un- 
less a  majority  of  the  committee  are  present  and  vote 
unanimously  in  favor  thereof.  In  the  event  of  such 
action,  it  is  the  duty  of  the  committee  to  call  a  meeting 
of  the  association  immediately  to  take  the  matter  into 
consideration. 

The  administration  of  the  clearing  house  is  vested  in 
a  president,  secretary,  manager,  assistant  manager,  com- 
mittee of  arbitration,  and  clearing-house  committee. 
The  latter  committee,  consisting  of  six  bank  officers,  is 
elected  annually,  and  in  it  is  vested  almost  absolute 
power.  This  committee  appoints  the  manager  and 
assistant  manager,  establishes  rules  to  be  observed  at 
the  clearing  house,  subject  to  the  approval  of  the  asso- 
ciation, and  generally  supervises  clearing-house  affairs. 
It  has  charge  of  the  funds  belonging  to  the  association, 
draws  on  each  bank  for  its  quota  of  expenses,  and  sub- 
mits to  the  association  detailed  accounts  of  expenditures. 
It  takes  into  its  custody  the  collateral  securities  required 
to  be  deposited  by  the  banks.  This  committee  has 
power  to  remove  the  manager  or  any  of  the  assistants 


234 


Clearing-House      Methods 

whenever,  in  its  opinion,  the  interests  of  the  association 
require  it.  The  committee  can  examine  the  books  and 
assets  of  any  member  of  the  association  whenever  it 
shaU  deem  it  necessary. 

The  committee  of  arbitration  is  also  elected  annually 
and  is  composed  of  six  bank  officers.  Upon  it  devolves 
the  duty  of  hearing  and  determining  disputes  between 
members  of  the  association  when  submitted  to  it  by  either 
party.  The  duties  of  this  committee,  however,  are  not 
very  arduous,  as  the  records  show  that  it  is  rarely  called 
upon  to  meet. 

The  president  is  elected  annually  by  ballot  and  pre- 
sides at  all  meetings  of  the  association.  He  is  ex  officio 
a  member  of  each  of  the  standing  committees  and  in  his 
absence  a  president  pro  tempore  is  appointed. 

At  the  beginning  of  the  organization  it  happened  that 
the  man  who  had  been  longest  president  of  a  bank  w^as 
made  president  of  the  association.  He  was  repeatedly 
reelected,  his  final  term  expiring  after  ten  years  of  service. 
The  precedent  of  electing  and  reelecting  to  the  presi- 
dency of  the  association  the  one  who  has  been  longest 
president  of  a  bank  has  since  been  adhered  to,  so  that  in 
the  history  of  the  association  there  have  been  only  five 
presidents,  as  follows:  Joseph  B.  Mitchell,  Joseph  Patter- 
son, James  V.  Watson,  J.  H.  Michener,  and  the  present 
incumbent,  F.  B.  Reeves,  who  assumed  office  on  January 
7,  1907. 

The  secretary  is  elected  at  the  annual  meeting  by  ballot. 
It  is  his  duty  to  keep  correct  minutes  of  the  proceedings 
of  the  association  in  a  book  provided  for  the  purpose. 


235 


National    Monetary     Commission 

The  manager  has  immediate  charge  of  all  business  at 
the  clearing  house;  under  clerks  and  messengers  from  the 
banks  are  under  his  direction.  His  decisions  concerning 
details  at  the  clearing  house  are  binding,  until  modified 
by  the  clearing-house  committee.  It  is  his  duty  to  im- 
pose and  collect  fines  fixed  by  the  association  for  the  vio- 
lation of  rules  at  the  exchanges.  With  the  assistance  of 
the  clerks,  he  performs  the  duties  connected  with  the  op- 
eration of  clearing,  the  adjustment  and  payment  of  bal- 
ances, the  keeping  of  records,  the  preparation  of  weekly 
statements,  and,  in  a  word,  all  the  details  of  clearing. 
His  salary  is  fixed  by  the  association  and  he  is  required  to 
give  bond  with  sureties  in  the  sum  of  $50,000,  subject  to 
the  approval  of  the  clearing-house  committee.  In  this 
connection  it  may  be  remarked  that  at  Chicago  a  bond 
is  required  in  the  same  amount,  but  at  Boston  and  New 
York  it  is  fixed  at  $10,000. 

Permanent  clerks  are  also  required  to  give  bond  in 
such  sums  as  the  clearing-house  committee  shall  deter- 
mine, with  approved  sureties.  Such  bonds  must  be  exam- 
ined by  the  clearing-house  committee  at  least  once  a  year. 

In  the  history  of  the  Philadelphia  clearing  house  four 
of  the  member  banks  have  failed,  viz,  the  Fourth  National 
in  1874,  the  Spring  Garden  and  the  Keystone  National  in 
1891 ,  and  the  Chestnut  Street  National  in  1897.  The  fail- 
ure of  the  Keystone  National  Bank  involved  the  receiver 
thereof  and  the  seven  members  of  the  clearing-house  com- 
mittee in  litigation.  The  facts  connected  with  the  case 
and  the  result  of  the  trial  are  very  interesting  and  impor- 
tant to  all  clearing-house  associations.  The  circumstances 
were  briefly  as  follows: 

236 


Clear  iftg-House      Methods 

On  March  20,  1891,  the  Keystone  National  Bank 
made  its  regular  exchanges  at  the  clearing  house,  bringing 
items  to  the  amount  of  $70,005.46,  and  receiving  $117,- 
035.21.  The  debtor  balance  of  this  bank,  therefore,  was 
$47,029.75.  The  bank  failed  to  pay  its  balance  at  12 
o'clock,  in  accordance  with  the  rules,  and  it  was  not  sub- 
sequently paid.  In  compliance  with  a  previous  agree- 
ment between  the  associated  banks  and  the  Keystone 
National  Bank,  the  manager  was  allowed  to  hold  the 
exchanges  received  by  the  latter  until  the  payment  of  the 
balance.  Accordingly  he  retained  the  packages  in  his 
possession,  and,  after  12  o'clock  on  the  day  of  failure, 
notified  the  banks  which  had  sent  the  exchanges  that  they 
must  make  them  good  by  the  payment  into  his  hands  of 
that  amount  of  money.  With  this  request  they  immedi- 
ately complied  and  took  away  the  packages. 

In  addition  to  the  debit  balance  of  $47,029.75  on  the 
morning  of  failure,  the  Keystone  National  Bank  owed 
$41,197.36,  for  which  it  had  issued  clearing-house  due- 
bills  in  payment  of  its  balance  on  the  preceding  day,  and 
which  duebills,  according  to  the  common  rule,  were  pay- 
able in  the  exchanges  on  the  following  day,  which  in 
this  case  was  the  day  of  failure.  Further,  it  owed  $335,000 
on  clearing-house  loan  certificates,  issued  to  it  by  the 
association  on  the  deposit  of  collateral  security  in  obedi- 
ence to  the  terms  of  a  special  agreement  entered  into 
between  said  bank  and  the  clearing-house  association. 
Acting  under  the  instructions  of  the  clearing-house  com- 
mittee, the  manager  appropriated  the  sum  of  $1 17,035.21, 
furnished  him  by  the  banks,  to  the  payment  of  the  obliga- 


237 


National    Monetary     Commission 

tions  of  the  Keystone  National  to  the  association,  as  fol- 
lows: In  payment  of  the  debit  balance  of  the  Keystone 
National  Bank  in  that  morning's  exchanges,  $47,029.75; 
to  make  good  the  duebills  given  by  the  bank  for  its  debtor 
balance  on  the  preceding  day,  including  duebills  given  to 
the  several  banks,  $41,197.36;  and  the  remainder,  amount- 
ing to  $28,808.10,  to  the  cancellation  of  a  part  of  the 
$335,000  in  clearing-house  loan  certifica^.es  issued  to  that 
bank. 

Upon  a  bill  brought  by  the  receiver  of  the  defaulting 
bank  against  the  seven  members  of  the  clearing-house 
committee,  the  circuit  coiu-t  rendered  a  decree  for  $70,- 
005.46,  with  interest  from  March  20,  1891,  against  the 
defendants,  on  the  ground  that  after  the  known  insolvency 
of  the  named  bank  they  applied  its  funds  in  their  hands  or 
under  their  control  to  the  payment  of  its  debts  to  the 
clearing-house  association  and  to  members  thereof,  wdth  a 
view  of  giving  them  unlawful  preference  over  other  cred- 
itors. 

The  circuit  court  of  appeals,  to  whom  the  case  was 
appealed  by  the  clearing-house  committee,  reversed  this 
decree,  on  the  ground  that  a  bona  fide  exchange  of  items 
had  taken  place  between  the  Keystone  National  Bank  and 
its  clearing-house  association  before  the  bank  examiner 
had  acted,  and  when  the  clearing-house  association  had 
no  reason  to  suspect  the  impending  failure.  The  trans- 
action was  in  the  regular  course  of  business  and  with  a 
view  to  continuing  operation.  The  exchange  was  an 
accomplished  fact,  and  the  only  thing  remaining  to  be 
done  was  the  payment  by  the  Keystone  National  Bank 


238 


Clearing-House     Methods 

of  its  debtor  balance  in  the  morning  exchange.  It  failed 
to  do  this,  and  hence  the  action  of  the  clearing-house 
manager  in  appropriating  the  money  received  from  the 
various  banks  holding  exchanges  on  the  Keystone  National 
Bank  to  the  payment  of  the  latter's  obligations  to  the 
association  was  a  justifiable  procedure.  The  receiver  of 
the  Keystone  National  Bank  finally  appealed  the  case  to 
the  Supreme  Court  of  the  United  States,  and  in  March, 
1897,  a  decision  was  rendered  in  favor  of  the  clearing- 
house committee. 


239 


Chapter  XVI. 
THE   BOSTON    CLEARING   HOUSE. 

FORMATION  AND  EARLY  HISTORY — PERIOD  OF  THE  CIVIL 
WAR — SETTLEMENT  OF  BALANCES — BORROWING  AND 
LOANING    BALANCES — CLEARING    FOR   OUTSIDE    BANKS. 

Only  three  years  after  the  establishment  of  the  New 
York  clearing  house  a  similar  association  was  formed  in 
Boston — namely,  in  1856 — for  the  purpose,  as  specified  in 
the  constitution,  of  effecting  a  more  perfect  and  satisfac- 
tory settlement  of  the  daily  exchanges  of  checks  and  other 
items,  and  of  the  balances  resulting  therefrom.  The  con- 
stitution was  modeled  very  closely  on  that  of  New  York, 
and,  although  important  changes  have  since  been  wrought 
in  both,  Boston  still  remains  more  nearly  on  the  New  York 
model  than  does  any  other  important  association  in  the 
United  States.  This  is  so,  for  the  most  part,  because  the 
New  York  clearing  house  was  the  only  one  at  that  time  in 
the  United  States;  and  hence  to  it  alone  could  Boston  look 
for  a  model. 

The  history  of  the  association  has  been  both  eventful 
and  interesting.  Prior  to  its  establishment  there  was 
much  opposition  to  it,  on  the  ground  that  it  was  an  "  inno- 
vation upon  the  established  order  of  things  and  of  doubtful 
expediency,"  but  when  the  pressure  in  favor  of  its  estab- 
lishment became  so  great  that  opposition  on  the  part  of 
a  few  was  no  longer  of  any  avail  and  it  became  an  estab- 
lished fact,  its  great  practical  utility  was  quickly  demon- 
strated and  the  opposing  banks  soon  came  into  it. 

240 


Clearing-House       Methods 

In  less  than  two  years  after  its  formation  the  panic  of 
1857  burst  upon  the  country,  and  in  that  crisis  its  useful- 
ness was  severely  tested.  In  New  York  specie  payments 
were  suspended,  whereupon  the  Boston  banks  immedi- 
ately took  action,  and  a  committee  was  appointed  to 
report  to  the  association  what  course  should  be  followed, 
in  view  of  the  action  at  New  York.  Upon  the  recom- 
mendation of  that  committee  that  Boston  should  follow 
the  lead  of  New  York,  specie  payments  were  suspended. 
It  thus  became  necessary  to  provide  some  substitute  for 
specie.  Clearing-house  loan  certificates,  based  upon  col- 
lateral as  security,  did  not  come  into  use  until  i860,  and 
hence  a  different  course  was  taken  from  that  generally 
pursued  by  clearing  houses  in  similar  emergencies  since 
that  time. 

The  association  voted  to  permit  its  members  to  use 
their  own  circulating  notes  in  the  settlement  of  balances 
to  a  limited  amount,  based  upon  the  capital  of  each  bank, 
in  no  case  exceeding  5  per  cent,  except  in  the  case  of  the 
Suffolk  Bank,  which  was  allowed  10  per  cent,  it  at  the  time 
being  the  redeeming  agent  for  the  note  circulation  of 
nearly  all  the  New  England  banks.  These  bills  thus 
received  at  the  clearing  house  were  to  be  returned  to  the 
next  day's  settlement,  and  were  to  be  at  the  joint  risk  of 
the  banks  in  proportion  to  the  amounts  of  their  respective 
capitals;  and  the  clearing-house  committee  were  author- 
ized to  demand  at  their  discretion  satisfactory  collateral 
security  for  such  bills.  The  banks  using  their  notes  at 
the  clearing  house  were  required  to  pay  one  day's  interest 
at  a  time. 


241 


National    Monetary     Commission 

The  association,  on  the  day  following  that  upon  which 
this  plan  was  adopted,  having  been  addressed  by  a  com- 
mittee representing  the  merchants  of  the  city,  who  ex- 
pressed their  desire  for  an  expansion  of  the  bank  loans, 
voted  that  the  amount  of  circulating  notes  that  may  be 
used  in  settlements  at  the  clearing  house  be  doubled.  At 
a  subsequent  meeting,  in  order  to  encourage  the  use  of 
specie,  it  was  voted  that  the  manager  keep  an  account  of 
the  specie  paid  in  by  each  bank,  and  in  subsequent  settle- 
ments repay  to  such  bank,  when  a  creditor,  specie,  this 
reimbursement  to  be  in  the  order  of  payment  by  the  banks. 

A  few  weeks  later  the  association  voted  that  the  amount 
for  which  the  bills  of  the  associated  banks  may  be  used  in 
the  liquidation  of  balances  at  the  clearing  house,  be  re- 
duced 50  per  cent,  and  on  December  14,  1857,  just  two 
months  after  suspension,  a  unanimous  vote  was  cast  in 
favor  of  the  resumption  of  specie  payments.  It  is  prob- 
able that  for  a  short  time  thereafter  the  use  of  bank  notes 
was  continued,  but  within  a  week  it  was  voted  to  discon- 
tinue altogether  their  further  use  at  the  clearing  house. 

From  this  time  on  the  exchanges  took  place  with  little 
interruption  till  the  outbreak  of  the  civil  war,  when  anx- 
iety and  distrust  again  seized  upon  the  country.  In  the 
latter  part  of  i860  it  was  voted  to  permit  the  banks  to 
settle  their  balances  at  the  clearing  house  with  their  own 
circulating  notes  to  the  extent  of  10  per  cent  of  their  capi- 
tal, it  being  voted  at  the  same  time  that  it  was  the  duty  of 
the  banks  to  maintain  specie  payments  in  that  crisis. 
There  was  much  disturbance  in  financial  circles  from  that 
time  forward,  and  on  August  27,   1861,  the  association 


242 


Clearing-House      Methods 

voted  that  any  bank  that  had  agreed  to  the  arrangement 
entered  into  by  the  banks  in  New  York,  Boston,  and  Phila- 
delphia, with  regard  to  the  national  loan,  could  deposit 
with  the  clearing-house  committee  treasury  notes  of  that 
loan  and  receive  certificates  to  an  amount  not  exceeding 
90  per  cent  of  the  par  value  of  such  treasury  notes.  These 
certificates  were  to  be  known  as  loan  certificates  and  were 
to  be  receivable  at  the  clearing  house  in  the  settlement  of 
balances.  These  were  the  first  certificates  of  the  kind 
issued  by  the  Boston  association. 

Not  long  thereafter  the  New  York  clearing  house  again 
suspended  specie  payments  and  was  followed  almost 
immediately  by  Boston,  in  a  resolution  declaring  that 
they  had  suspended  specie  payments  until  such  time  as 
they  could  with  safety  resume  their  legitimate  basis  for 
circulation  and  deposit.  That  time  did  not,  in  the  course 
of  events,  arrive  until  seventeen  years  had  passed  by. 

Affairs  drifted  on  from  bad  to  worse  until  the  panic 
of  1873,  when  the  association  again  authorized  the  issue 
of  clearing-house  loan  certificates,  secured  by  collateral, 
on  substantially  the  same  basis  as  the  issue  by  the  banks 
in  New  York.  No  further  action  of  this  kind  was  taken 
by  the  association  until  seventeen  years  later,  when,  in 
1890,  certificates  were  again  issued,  and  these  were  fol- 
lowed by  similar  issues  in  1893  and  1895.  Such  are  the 
important  features  of  the  association's  history. 

The  Boston  clearing  house  is  located  at  a  central  point 
in  State  street.  Here,  at  10  o'clock  in  the  morning  of 
each  business  day,  the  representatives  of  eighteen  banks, 
members  of  the  association,  meet  and  exchange  the  items 


243 


National    M  o  n  e  t  ar  y     Commission 

which  they  hold  upon  each  other.  The  process  of  ex- 
changing items  is  precisely  the  same  as  at  New  York, 
except  that  in  Boston  they  have  abandoned  the  practice 
of  receipting  for  exchanges  as  delivered  on  the  ground 
that  it  is  a  useless  expenditure  of  time. 

In  the  settlement  of  balances  Boston  has  a  system 
peculiarly  its  own.  The  constitution  declares  that  "the 
debtor  banks  shall  pay  to  the  manager  at  the  clearing 
house  the  balances  due  from  them  respectively,  either 
in  coin  or  in  such  other  currency  as  the  laws  of  the  asso- 
ciation shall  require,  or  in  such  certificates  as  shall  be 
authorized  by  the  clearing-house  association,  excepting 
sums  less  than  $i,ooo,  which  may  be  paid  in  national- 
bank  bills."  Although  coin  is  specified  as  acceptable  in 
the  payment  of  balances,  it  is  tacitly  agreed  that  no  silver 
will  be  used,  owing  to  its  great  bulk  and  consequent 
inconvenience. 

All  gold  paid  into  the  clearing  house  in  payment  of 
balances  must  be  put  up  in  strong  canvas  bags,  each 
containing  $5,000,  all  coins  contained  in  any  one  bag 
to  be  full  weight  and  of  one  denomination,  the  bags 
to  be  securely  fastened  with  a  seal  (bearing  the  name 
of  the  member  putting  up  such  package)  in  such 
manner  that  in  the  opinion  of  the  manager  of  the 
clearing  house  the  fastenings  can  not  be  sufficiently 
released  to  allow  of  the  removal  of  any  of  the  contents 
without  mutilating  the  seal.  Every  such  package  must 
have  a  suitable  label  or  tag  attached  bearing  the  name  of 
the  sealing  mem.ber,  the  amount  of  the  contents,  denom- 
ination, date  of  sealing,  and  signature  of  the  person  or 
persons  sealing  the  same. 

244 


Clearing-House      Methods 

All  packages  containing  legal-tender  notes  or  United 
States  gold  certificates,  for  use  in  payment  of  balances 
at  the  clearing  house,  must  be  made  up  in  even  amounts 
of  $i,ooo,  $2,000,  $3,000,  $4,000,  $5,000,  $10,000,  $20,000, 
$50,000,  or  $100,000  each.  Notes  of  smaller  denomina- 
tions than  $500  must  be  put  up  in  packages  containing 
notes  of  but  one  denomination  and  not  more  than  one 
hundred  notes  each. 

All  packages  must  be  distinctly  marked  with  the 
name  of  the  bank,  the  date,  and  the  amount  of  money. 

Reclamations  for  errors  and  deficiencies  in  coin  re- 
ceived at  the  clearing  house  contained  in  bags  or  other 
packages,  sealed  and  marked  in  conformity  with  rules 
which  may  be  established  by  the  committee,  are  to  be 
made  by  the  receiving  banks  directly  against  the  banks 
whose  marks  they  bear,  the  clearing  house  not  being 
responsible  for  the  contents  of  such  sealed  bags  or  pack- 
ages, and  such  reclamations  shall  be  made  not  later  than 
2  o'clock  p.  m.  on  the  day  next  following  receipt. 

Each  debtor  bank,  at  the  hour  for  making  its  settle- 
ment at  the  clearing  house,  sends  a  ticket  with  an  itemized 
statement  of  its  balance,  as  shown  in  the  illustrations. 

On  the  back  of  the  receipt  which  the  manager  gives  the 
bank  for  its  balance,  copy  of  which  is  also  shown  among 
the  illustrations,  is  a  similar  blank,  and  upon  this,  after 
counting  each  balance  as  it  is  paid  in,  he  itemizes  it,  and 
if  he  finds  that  his  statement  agrees  with  the  one  sent  in 
by  the  bank  he  makes  out  a  receipt  for  the  whole,  being 
satisfied  that  his  work  is  correct.  He  retains  any  orders 
received  from  creditor  banks  as  his  receipts  for  their  bal- 
ances. 

245 


National    Monetary     Commission 


Boston, - 

BALANCE  PAID  CLEAEIK6-H0U8S  THIS  DAT  BT 

FIRST  NATIONAL  BANK. 


Be  sure  and  Itemize  your  balance.     Have  bills 
properly  strapped  and  distinctly  marked. 


Change 


Bills 


Legal  Tenders  - 


C.H.GoldCtfs.  - 


Coin 


Gold  Certificates- 


Orders 


Amount 


F>)hM  OF  Ticket  UbEo  by  Boston  Banks  in  CoNNtoriON 
WITH  Patmknt  of  Dkbit  Balancks. 


246 


Clearing-House       Methods 

Many  3^ears  ago  the  custom  sprang  up  at  Boston  of  bor- 
rowing and  loaning  balances  at  the  morning  exchanges, 
and  the  settlement  of  the  same  by  orders  on  the  clearing 
house,  and  at  one  time  this  practice  was  an  important 
feature  of  the  clearing  system.  During  the  past  few  years, 
however,  the  practice  has  been  largely  discontinued,  and 
only  occasionally  does  one  bank  now  borrow  from  another 
on  account  of  its  debit  balances.  Groups  of  officers  may 
still  be  found  at  the  clearing  house  each  morning,  but  gen- 
erally for  the  purpose  of  buying  and  sehing  New  York  ex- 
change, and  not  for  borrowing  and  loaning  balances,  as 
heretofore,  although  occasionally  a  debtor  bank  or  banks 
still  borrow  from  a  creditor  bank  or  banks  for  the  purpose 
of  paying  clearing-house  balances. 

The  borrowing  and  loaning  of  balances  had  its  incep- 
tion in  a  small  way  some  thirty  years  since,  as  a  matter  of 
convenience  to  debtor  banks,  and  is  quite  unlike  anything 
else  in  the  clearing  houses  of  the  United  States.  Before 
its  adoption  debtor  banks  which  found  their  balances  at 
the  morning  exchanges  too  great  for  convenient  settle- 
ment with  cash,  but  which  could  easily  call  in  the  neces- 
sary amount  later  in  the  day,  were  accustomed  to  send 
their  representatives  through  the  streets  to  borrow  from 
neighboring  banks.  Owing  to  the  inconvenience  and 
risk  of  this  practice,  the  presidents  and  cashiers  of  the 
banks  began  to  meet  at  the  clearing  house,  and  then,  after 
the  exchanges  had  taken  place,  to  borrow  and  loan  their 
balances.  The  custom  found  favor  with  the  banks,  and 
at  one  time  had  grown  to  such  considerable  proportions 
that  some  60  per  cent  of  the  total  balances  were  settled  in 


247 


National    Monetary     Co 


m  mis  s  to  n 


M3NDIX  IdlSDHH 


Clearing-House      Methods 

that  way.  On  the  floor  of  the  clearing  house  at  each  morn- 
ing exchange  could  be  seen  a  busy  group  of  bank  officials, 
some  borrowing  balances,  others  negotiating  loans. 

A  may  find  himself  a  heavy  debtor  and  may  desire  to 
borrow  of  B,  whose  balance  is  a  heavy  credit.  If  B  wishes 
to  loan  to  A,  he  gives  him  an  order  on  the  clearing  house, 
and  the  latter  uses  it  the  same  day  in  the  settlement  of  his 
balance.  All  orders,  therefore,  on  the  clearing  house  are 
accepted  by  the  manager  in  the  settlement  of  balances  to 
the  full  extent  of  their  face  value.  But  A  may  not  desire 
but  a  small  part  of  B's  balance,  in  which  event  B  may 
find  a  dozen  other  banks  anxious  to  borrow,  to  each  of 
whom  he  may  loan  a  portion.  Again,  some,  not  finding 
it  advantageous  either  to  borrow  or  loan,  settle  their  bal- 
ances by  the  usual  cash  payments  at  the  clearing  house. 
In  practice,  some  banks  habitually  loan,  but  never  bor- 
row.    Others  habitually  borrow,  but  seldom  or  never  loan. 

Although  no  direct  losses  have  ever  occurred  from  this 
practice,  it  is  strenuously  opposed  by  conservative  bank- 
ers on  the  ground  that  it  is  dangerous  for  banks  to  borrow 
so  heavily  when  they  may  be  called  upon  for  the  full 
amount  of  the  loan  without  a  moment's  warning.  For 
example,  A  loans  B  $75,000  to-day,  and  the  latter  uses  it 
in  the  settlement  of  his  balance.  B  does  not  find  it  con- 
venient to  return  the  loan  to-morrow,  and  A,  finding  an 
opportunity  a  day  or  two  later  for  a  better  investment, 
sends  through  the  clearing  house  a  check  on  B  for  the  full 
amount.  The  latter  is  left  with  no  alternative  but  to  pay 
the  balance  or  fail.  Any  objection,  therefore,  to  such  a 
custom  seems  on   its  face  plausible,  but  in   practice,  as 

20040 — 10 17  249 


National     Monetary     Co 


mints  s  t  on 


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250 


Clearing-House      Methods 

is  claimed,  a  severe  check  is  placed  upon  the  borrower 
by  the  discretion  of  the  loaner.  It  is  practically  impos- 
sible for  any  member  to  be  a  habitual  borrower  without 
its  being  known  to  the  other  members.  Thus  creditor 
banks  are  enabled  to  exercise  proper  care  in  making  loans, 
and  thereby  to  avoid  loss. 

The  rate  of  interest  on  such  loans  corresponds  very 
closely  with  the  rate  on  call  loans.  The  newspapers  reg- 
ularly report  the  clearing-house  rate,  and  this  doubtless 
has  some  influence  on  the  rate  in  the  market.  A  prom- 
inent banker  has  said  that  the  effect  of  this  custom  is  to 
make  the  rate  higher  than  it  otherwise  would  be,  as  the 
banks  needing  the  money  must  have  it,  no  matter  what  the 
rate  may  be,  but  in  a  weak  market  it  has  the  effect  of 
making  the  rate  lower,  since  banks  having  a  surplus  will 
accept  a  low  rate  rather  than  hold  cash  over. 

One  important  disadvantage  of  this  plan  of  borrowing 
and  loaning  balances,  and  one  which  has  come  into  promi- 
nent notice  in  certain  instances  of  late,  should  be  mentioned 
in  this  connection.  A  bank  that  is  a  borrower  of  clearing- 
house balances  is  thereby  deprived  of  the  assistance  in 
time  of  distress  afforded  by  clearing-house  loan  certifi- 
cates. As  before  mentioned,  the  members  of  the  clearing 
house  who  are  lenders  of  balances  are  very  sure  to  know 
of  a  given  bank  that  is  an  habitual  borrower,  and  accord- 
ingly they  are  on  their  guard,  watching  for  the  oppor- 
tunity to  call  for  the  amounts  they  have  loaned  whenever 
it  would  seem  that  the  debtor  bank  could  pay  the  same. 
As  soon,  therefore,  as  the  debtor  bank  arranges  for  clear- 
ing-house loan  certificates,  its  fellow-members,  who  are  its 


251 


National    Monetary     Commission 

creditors,  hold  out  their  hands  for  them,  thereby  exchang- 
ing unsecured  claims  against  the  bank  for  the  very  best 
security  that  it  can  put  up.  The  debtor  bank  then  is 
deprived  of  the  advantage  of  clearing-house  loan  certifi- 
cates up  to  the.  amount  of  its  indebtedness  to  its  fellow- 
members. 

To  put  it  otherwise,  the  act  of  borrowing  balances  in 
the  clearing  house  anticipates  the  help  that  otherwise  the 
clearing  house  could  and  would  be  to  the  bank  when  it 
really  needed  assistance.  It  is,  of  course,  impossible  to 
eat  the  cake  and  have  it  too.  During  the  time  this  custom 
has  prevailed  in  Boston,  many  banks,  first  and  last,  have 
found  themselves  embarrassed  thereby,  and  have  been 
compelled  to  struggle  along  in  seasons  of  stringency  with- 
out the  help  that  clearing-house  loan  certificates  would 
have  afforded  them,  simply  because  to  have  asked  for 
them  would  have  advertised  their  condition  in  a  manner 
to  bring  one  class  of  their  creditors  down  upon  them  in  a 
way  to  nullify  all  the  assistance  they  had  obtained,  and 
perhaps  also  draw  the  attention  of  the  business  public  to 
their  embarrassed  condition,  after  they  had  exchanged 
their  good  bills  receivable  for  clearing-house  loan  certifi- 
cates. 

The  plan  of  borrowing  and  lending  balances,  although 
very  generally  acquiesced  in  by  the  banks  of  Boston, 
would  seem  to  be  fraught  with  danger.  It  would  be  less 
alarming,  in  the  estimation  of  many  conservative  bankers, 
if  the  creditor  banks  were  obliged  by  clearing-house  rules 
to  report  from  day  to  day  to  what  institutions  they  have 
loaned  their  balances,  either  in  whole  or  in  part.     Trans- 


252 


TON, 

i   1909. 


2  Nati. 

3  Old  , 

4  Stat( 

5  New 

12  Atla: 

13  Men 
17  Seco 
20  Natii 
22  Nat': 

25  Web 

26  Elio1 
32  BoyI 
39  First 
46  Natii 
51  Foui! 
53  Win! 
56  Com 

A(" 
Cc 

J 


tenoeL.  r    ^'■'^'^'^> 


201,000 

2S,000 
393,000 

63,030 
117,O0C 
185,000 
639,000 
,076,000 
259,000 

38,000 
329,000 

29,000 
635,000 
"132,000 
455,000 
107,000 

46,000 


4,735,000 
Dec. 
129,000 


BANKS. 


1,055,000 
185,000 
901,000 
35,000 
376,000 
950,000 
2,201,000 
7,610,000 
1,260,000 
483,000 
1,085,000 
352,000 
6,000,000 
101,000 
477,000 
348,000 
180,000 


National  Union 2 

Old  Boston  National 3 

State  National 4 

New  England  National 5 

Atlantic  National 12 

Merchants  National 13 

Second  National 17 

National  Stiawmut 20 

Nat'l  B'k  of  Commerce 22 

Webster  and  Atla^  Nat'l ....  25 

Eliot  National 26 

Boylston  National 32 

First  National 39 

National  Security 46 

Fourth  National 51 

Winthrop  National 53 

Commercial  National 56 


23,599,000 
Dec. 
53,000 


ION'S  Foreign  Df.paktmknt. 
11,072,516 
10,810,682 
10,287,694 


20040 


SXATEMENT 


ASSOCIATED     BANKS     OF     BOSTON, 


itiiiML-d  to  tliL-  CleiiriiiK-lii 


ivgek  eudiTig  Saturdiiy.  August  I4   190». 


2 

National  Union 

..   i.ono 

COD 

!I.C37,000 

147.000 

s.vo.om 

2.H39.000 

1.440.000 

703,090 

660.000 

7,500 

201,000 

1,055,000 

National  Uniun 

4 

State  National 

,.    2.000 

10.103,000 

323.000 

7.662.000 

3,522.000 

l.OOO 

1.472.000 

1.592.000 

11,650 

393,000 

901.000 

State  Nalioniil 

6 

New  England  National . . . 

..       200 

000 

668,000 

90,000 

530,000 

271.000 

1.000 

03.000 

16.000 

232,000 

5.000 

65,000 

35.000 

New  England  Suliwrnil 

12 

Atlantic  National 

.        750 

000 

3,633,000 

207.000 

3.791,000 

1,343.000 

1.000 

51S,000 

302,001) 

984,000 

10,350 

117,000 

.376,000 

Atlantic  National 

13 

Merchanle  Notional 

..    3,000 

000 

16,449.000 

1.420.000 

H.OIO.OOO 

2.064.000 

101.000 

1,438,000 

1,350.000 

572.000 

76.000 

185,000 

950,000 

Mercliaiil-i  Nittion.il 

17 

Second  National 

-.    2,000 

000 

20,882.000 

097.000 

21.13J.000 

5.478.000 

1.000 

3,044,000 

1.603.000 

l,}i98.000 

35.2,50 

639.000 

2,201,000 

Se.:nr„IN..l„,[i,d 

20 

National  Shawmut 

.  -  3,500 

000 

63,874,000 

434.000 

56,335,000 

29.089,0011 

1.192.000 

12.0fW  ntio 

4.3,54.000 

7.624,000 

74.000 

.076,000 

7,610.000 

Kaliniinl  Mill »i, lilt 

22 

KaflB'ltol  Commerce... 

..    1.500 

000 

11.135.000 

50.000 

11.S80.000 

1,781.000 

1.000 

2,381,000 

053.000 

580,000 

2,500 

259,000 

1.260,000 

Nut'l  Il'k  ol  tVifiim.tve 

25 

Webster  and  Atlas  Nat'l.- 

1.000 

000 

5,380.000 

181.000 

4.041-,000 

649,000 

l.OOO 

582.000 

168,000 

314,000 

0,250 

38.000 

483,000 

Wi-bsterundAtla,  Kat'l. 

20 

Eliot  National 

..    l.OOO 

000 

10,753,000 

auo.ooo 

7,1(12.000 

4^82,0^3 

1,373.000 

714.00IP 

684.000 

30.000 

329,000 

1,085,000 

Eliot  National 

S.898.000 

149,000 
.167.000 

7,500 
40,000 

635.000 

352,000 
6.000.000 

39 

Firet  National 

..   2.000 

000 

44.030,000 

800.0DO 

34.721.000 

28,680,000 

708.000 

2.002,000 

First  National 

48 

National  Security 

.-       250 

000 

2.3S2.000 

248,000 

l.SOS.OOO 

153,000 

232,000 

92.000 

339,000 

13,500 

132,000 

101,000 

National  Security 

51 

Fourth  National . 

..    1,000 

ouo 

6.8fl0.000 

380.000 

7,176.000 

1.233.000 

l.OOO 

995.000 

575.000 

715,000 

20,000 

455,000 

4n.ooo 

Fourlli  National 

000 

3,2»3,000 

298,000 

2.50!>,000 

1,045,000 

1.000 

436.U00 

148,000 

338,000 

15.000 

107,000 

348,000 

60 

Commertial  National 

..       250 

000 

1.951.000 

148.O0U 

1.022,000 

183,000 

263.000 

149.000 

154.000 

7.500 

40,000 

180,000 

Commercial  National 

AcGitECArts. 

21.350 

000 

2ir.,S4ft,000 

7.555.000 

183.73S,000 

S.1.224.000 

2,000.000 

30.809,000 

H.072,000 

24.009,000 

386.500 

4,735.000 

23,599,000 

Dec. 

Del- 

Dec. 

Dec 

Dec. 

Inc. 

Dec- 

Inc. 

Dec, 

Dec, 

Dec. 

C0MPAal60N6. 

■laj.oijo 

11,000 

i.win.oon 

497,000 

0.000 

SM.OOO 

2.560.000 

236,000 

2.000 

129,000 

53,000 

Week  ending  August  14, 1909. . 


30040 — 10.     (To  face  p 


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253 


National    Monetary     Commission 

actions  of  this  kind,  it  would  seem,  ought  to  be  noted  in 
the  clearing-house  records. 

A  special  committee  has  in  charge  the  deposits  of  gold 
coin  and  gold,  silver,  and  legal-tender  notes,  by  member 
banks  of  the  Boston  clearing  house  as  a  special  trust  fund, 
against  which  negotiable  certificates  are  issued.  The  gold 
coin  and  various  kinds  of  notes  are  stored  in  rented  vaults, 
the  clearing  house  occupying  leased  quarters  and  there- 
fore having  no  accommodations  of  its  own  suitable  for  the 
purpose.  The  fund  so  deposited  at  the  present  time 
amounts  to  about  $3,000,000  in  gold  coin  and  about 
$4,250,000  in  notes,  and  certificates  to  a  like  anfount  have 
been  issued  against  it. 

On  obtaining  the  written  assent  of  the  clearing-house 
committee,  members  of  the  association  are  allowed  to 
clear  for  outside  banks  and  trust  companies;  but  any 
bank,  member  of  the  association,  making  such  exchanges, 
is  liable  therefor,  and  in  the  same  manner  as  for  its  own 
exchanges  and  until  at  least  one  day's  notice  in  writing 
is  given  to  the  clearing-house  committee.  Accordingly, 
in  Boston  and  vicinity,  and  within  a  radius  of  ten  miles 
from  State  street,  are  no  less  than  24  banks  and  trust 
companies  making  their  exchanges  through  members  of 
the  association,  upon  such  terms  of  security  as  are  agreed 
upon  between  them  and  the  clearing  members.  Full  re- 
sponsibility for  their  acts  is  placed  upon  the  members 
through  which  they  clear. 

No  statements  whatsoever  are  required  by  the  associa- 
tion from  such  outside  institutions,  it  being  left  wholly  to 
the   members    to    determine   their   condition.     Members, 


254 


Clearing-House       Methods 

however,  are  required  to  furnish  the  manager  weekly  state- 
ments of  condition.  An  example  of  the  form  employed  is 
given  among  the  illustrations.  A  statement  is  also  sub- 
mitted of  the  condition  of  the  associated  banks  of  Boston, 
as  returned  to  the  clearing  house  for  a  given  week. 

It  will  be  noted  further  that  there  is  a  wide  difference 
in  the  items  included  in  the  two  statements.  At  Boston 
they  are  given  under  12  heads,  and  at  New  York  under  7. 
The  only  item  called  for  by  the  New  York  statement, 
not  included  in  the  same  at  Boston,  is  "Net  profits," 
while  the  item  of  "Loan"  in  the  Boston  statement  is 
reported  as  "Loans  and  discounts"  in  New  York.  "De- 
posits," as  reported  at  New  York,  is  given  in  Boston  under 
three  heads,  "Individual  deposits,"  "Due  to  banks,"  and 
"United  States  deposits."  "Bills  payable,"  which  for- 
merly appeared  in  the  Boston  statement,  has  been 
omitted  for  several  years  past.  The  requirement  of  the 
items,  "Due  from  reserve  agents,"  "Exchanges  for  clear- 
ing house,"  "  Due  from  banks  other  than  reserve  agents," 
and  "5  per  cent  fund,"  is  not  made  by  the  New  York 
association. 

In  addition  to  the  protection  furnished  by  these 
statements,  the  clearing-house  committee  is  empowered 
to  examine  any  bank  belonging  to  the  association,  and 
to  require  from  said  bank  securities  of  such  an  amount 
and  character  as  the  committee  may  deem  sufficient  for 
the  protection  of  the  balances  at  the  clearing  house, 
whenever  it  shall  be  for  the  best  interests  of  the  associa- 
tion. Thus  a  member  may  be  found  to  be  weak  and 
in  danger  of  failure.     If  it  is  unable  to  pay  its  balances 


255 


National     Monetary     Commission 

at  the  clearing  house,  these  securities  will  be  appropriated 
for  that  purpose. 

The  expense  of  printing  is  borne  equally  by  the 
members,  and  all  other  expenses  are  defrayed  by  an 
annual  assessment  of  $125  upon  each  member,  and  the 
remainder  after  that  amount  pro  rata  the  average  daily 
amount  which  each  bank  has  sent  to  the  clearing  house 
during  the  preceding  year. 

Upon  each  nonmember  clearing  through  the  associa- 
tion an  assessment  is  made  as  follows:  Four  hundred 
dollars  per  annum  on  institutions  whose  capital  is  $500,000 
or  less ;  $600  on  institutions  whose  capital  is  over  $500,000 
and  less  than  $1,000,000,  and  $800  on  all  whose  capital 
exceeds  $1,000,000. 

Admissions  to  membership  may  be  made  from  time 
to  time  according  to  the  following  rule: 

New  members  may  be  admitted  to  this  association  on  the  recommenda- 
tion of  the  clearing-house  committee,  by  an  affirmative  vote  of  three- 
fourths  of  all  the  members  of  this  association,  at  a  meeting  called  for  the 
purpose,  such  vote  to  be  taken  by  ballot;  and  each  member  thus  elected 
shall,  before  admission,  pay  an  admission  fee  of  $5,000  and  assent  and 
subscribe  to  this  constitution  in  the  manner  hereinafter  provided. 

For  cause  deemed  sufficient,  any  member  may  be 
expelled  from  the  association  by  a  majority  vote  of 
all  the  members.  The  constitution  declares  that  before 
withdrawal  a  member  must  pay  its  due  proportion  of 
all  expenses  for  the  current  year  and  give  three  months' 
notice  in  writing  of  such  intention  to  the  secretary. 

In  practice,  however,  if  a  member  desiring  to  with- 
draw pays  its  expenses,  in  compliance  with  the  above 
requirement,  and  there  is  no  objection  on  the  part  of 
the  association,  it  may  withdraw  in  less  than  the  speci- 

256 


Clearing-House      Methods 

fied  time,  as  was  true  of  the  Hancock  Bank,  which  with- 
drew on  thirty  days'  notice.  The  power  of  suspension 
is  lodged  with  the  clearing-house  committee,  but  at  least 
four  of  the  five  members  of  the  committee  must  be  in 
favor  of  such  suspension,  and  the  committee  must  forth- 
with call  a  meeting  of  the  association  to  take  the  matter 
into  consideration. 

As  shown  before,  the  clearing-house  association  at 
New  York  was  the  only  one  in  America  when  the  bankers 
at  Boston  founded  their  clearing  house.  In  nearly  all 
the  details  of  method  and  administration  the  rules 
established  at  New  York  were  taken  as  a  basis.  As 
time  went  by  a  few  changes  were  found  necessary,  par- 
ticularly in  reference  to  administration,  and  hence  it  is 
unnecessary  here  to  deal  elaborately  with  this  phase  of 
the  subject. 

The  usual  meetings  of  the  association  are  held  once 
each  year,  and  at  such  other  times  as  the  clearing-house 
committee  may  designate  on  their  own  responsibility  or 
when  requested  to  do  so  by  any  five  of  the  associated 
banks.  Owing  to  the  difficulty  of  obtaining  a  quorum, 
the  required  number  was  fixed  at  one-third  instead  of 
one-half  of  all  the  members,  as  in  most  associations. 

At  each  annual  meeting  a  chairman  and  a  secretary 
are  chosen  by  ballot,  to  hold  office  for  one  year  or  until 
their  successors  are  chosen.  At  the  same  meeting  a 
nominating  committee  of  three  persons  is  selected,  whose 
duty  it  is  to  present  to  each  bank  belonging  to  the  associa- 
tion a  list  of  nominees  for  officers  for  the  succeeding  year, 
such  list  to  be  presented  at  least  two  weeks  before  the 


257 


V 

National    Monetary     Commission 

meeting  next  after  their  election.  A  standing  committee 
of  five  bank  presidents  or  other  directors  of  banks,  mem- 
bers of  the  association,  to  be  called  the  "clearing-house 
committee,"  is  elected  annually,  to  serve  for  one  year, 
and  to  their  care  most  of  the  important  interests  of  the 
association  are  intrusted,  as  at  New  York  and  elsewhere. 
They  appoint  the  manager,  whose  salary  is  fixed  by  the 
association,  and  who  is  required  to  give  bond  in  the  sum 
of  $20,000,  such  bond  to  be  approved  by  the  clearing- 
house committee.  The  duties  of  the  manager  consist 
in  supervising  the  exchanges  between  the  banks  and  the 
settlements  of  balances.  He  is  in  immediate  control  of 
all  the  business  transactions  of  the  clearing  house,  dis- 
charging all  the  duties  usually  incumbent  upon  such 
officers. 

In  another  chapter  is  given  an  account  of  the  foreign 
department  of  the  Boston  clearing  house,  being  the 
outgrowth  of  an  experiment  which  was  commenced  in 
June,  1899. 


258 


Chapter  XVII. 

FOREIGN  DEPARTMENT  OF  THE  BOSTON  CLEARING 

HOUSE. 

ORGANIZATION  AND  HISTORY — REGUIvATlONS TWO   CI.EAR- 

ING      HOURS  —  BIvANKS      AND      FORMS  —  FINES  —  BOOK- 
KEEPING. 

The  Boston  Clearing  House  Association  has  had  in 
operation  for  several  years  past  a  plan  of  making  collec- 
tions in  the  territory  naturally  tributary  to  that  city 
but  outside  of  the  city  itself.  It  is  known  as  the  "for- 
eign department  of  the  clearing-house  association,"  and 
is  conducted  independently  of  the  regular  clearings  of 
that  organization. 

The  question  of  collecting  out-of-the-city  checks  had 
been  discussed  by  members  of  the  Boston  Clearing  House 
Association  for  a  long  time,  and  finally,  early  in  the 
year  1899,  a  special  committee  was  appointed  to  which 
the  whole  subject  of  collecting  checks  throughout  the  dis- 
trict known  as  New  England  was  referred.  This  com- 
mittee, after  careful  deliberation,  reported  that  in  its 
judgment  it  was  advisable  and  practicable  for  the  clearing 
house  to  undertake  the  collection  of  such  checks  and  to 
distribute  the  proceeds  thereof.  The  committee  advised 
beginning  with  the  State  of  Massachusetts,  and  adding 
the  other  New  England  States  one  by  one,  as  soon  as 
the  proper  provision  for  the  same  could  be  made. 

259 


National    Monetary     Commission 

The  report  of  the  committee  further  recommended 
that  the  work  be  done  at  the  clearing  house  by  the  man- 
ager, under  the  supervision  of  the  clearing-house  com- 
mittee.    It  nominated  the  following  routine: 

Those  banks  which  choose  to  avail"  themselves  of  this  method  of  collect- 
ing their  checks  shall  deposit  them  at  some  fixed  hour,  say  at  i  o'clock,  of 
each  day.  The  checks  are  then  to  be  assorted  and  the  checks  on  each 
out-of-town  bank  made  up  in  a  separate  package.  To  this  package  a 
slip  shall  be  attached  bearing  a  list  of  the  checks,  and,  further,  a  com- 
plete list  is  to  accompany  the  checks,  showing  the  total  of  the  amount  on 
each  bank,  respectively.  The  clearing-house  employees  assigned  to  that 
duty  shall  send  the  checks  forward  to  the  banks  on  which  they  are  drawn, 
so  far  as  such  banks  will  undertake  to  remit  for  checks  on  themselves  by 
drafts  on  their  Boston  or  New  York  correspondents. 

It  was  further  suggested  that  in  some  cases  checks  on 
all  the  banks  in  one  town  or  city  might  be  collected 
through  a  single  bank.  The  checks  were  to  be  sent  by 
mail  or  by  express,  as  found  desirable. 

The  report  further  set  forth  that  the  manager  of  the 
clearing  house  should  have  a  desk  and  number  assigned 
to  him,  and  should  take  part  in  the  morning  settlements, 
collecting  through  such  settlements  the  various  checks  on 
Boston  banks  received  by  him,  and  paying  in  the  same 
way  to  the  Boston  banks  their  respective  proportions  of 
the  checks  forwarded  two  days  previously,  as  might  be 
arranged.  Each  day's  settlements  by  the  manager,  the 
report  continued,  should  represent  the  amount  of  foreign 
checks  received  on  a  certain  previous  day,  and  the  debits 
and  credits  should  be  equal  in  amount.  In  case,  however, 
remittances  should  be  delayed  so  that  the  manager  was 
without  sufficient  funds  to  meet  the  charges  against  him, 
he  would  charge  against  the  several  banks,  through  the 
morning  settlements,   their  respective  amounts  of  such 

260 


Clearing-House      Methods 

delayed  remittances,  or  settle  with  the  banks  in  their 
respective  proportions  of  such  delayed  remittances  in  the 
payment  of  balances  by  the  debtor  banks  and  the  distri- 
bution of  balances  to  the  creditor  banks.  The  report  was 
accompanied  by  various  forms  w^iich  were  subsequently 
adopted  for  use. 

This  report  was  approved,  and  at  a  meeting  held  De- 
cember 1 8,  1899,  the  following  amendment  to  the  con- 
stitution, which  had  been  recommended  by  the  clearing- 
house committee,  was  adopted: 

The  clearing-house  association  shall  have  the  power  to  establish  rules 
and  regulations  regarding  collections  by  members  of  the  association,  or 
banks,  or  trust  companies,  or  others  clearing  through  such  members,  and 
the  rates  to  be  charged  for  such  collections,  and  also  to  provide  for  the 
enforcement  of  the  same.  The  association  may  from  time  to  time  make 
any  additions  to  or  changes  in  such  rules  and  regulations  as  it  deems 
judicious.  Any  rule  or  regulation  upon  the  subject  can  be  established 
only  by  a  vote  of  the  majority  of  all  the  members  of  the  association,  and 
when  once  established  it  shall  not  be  altered  until  it  has  been  in  force  at 
least  three  months,  and  then  only  by  a  majority  vote  of  all  the  members 
of  the  association. 

Under  this  provision  rules  and  regulations  were  adopted 
at  a  meeting  held  December  27,  as  follows: 

Section  i.  These  rules  and  regulations  shall  apply  to  all  members  of  the 
association  and  to  all  banks  or  trust  companies  or  others  clearing  through 
such  members.  The  parties  to  which  the  same  so  apply  are  hereinafter 
described  as  collecting  banks. 

Sec.  2.  For  all  checks  and  drafts  from  whomsoever  received,  drawn 
upon  any  New  England  bank  or  trust  company  or  banking  house  or  other 
banking  institution,  which  does  not  pay  checks  and  drafts  drawn  upon 
itself  and  sent  through  the  Boston  clearing  house  by  remitting  therefor 
on  receipt  thereof  promptly  at  par  checks  upon  some  member  of  the 
Boston  or  New  York  clearing  house,  or  upon  a  banking  institution  clearing 
through  some  such  member,  the  collecting  banks  shall  charge  not  less 
than  one-tenth  of  i  per  cent  of  the  amount  of  such  checks  and  drafts, 
respectively. 

Sec.  3.  In  case  the  charge  upon  any  check  or  draft  at  the  rate  above 
specified  does  not  equal  10  cents,  the  collecting  bank  shall  charge  not  less 
than  that  sum;  but  all  checks  and  drafts" received  from  any  one  depositor 

261 


National    Monetary     Commission 

or  correspondent  on  the  same  day,  and  payable  by  the  same  institution, 
may  be  added  together  and  treated  as  one  item  for  the  purpose  of  fixing 
the  amount  to  be  charged. 

Sec.  4.  The  charges  herein  specified  are  in  all  cases  to  be  collected  at 
the  time  of  deposit  or  not  later  than  the  tenth  day  of  the  following  calendar 
month.  No  collecting  bank  shall  directly  or  indirectly  allow  any  abate- 
ment, rebate,  or  return  for  or  on  account  of  such  charges  or  make  in  any 
form  any  compensation  therefor. 

Sec.  5.  In  case  any  member  of  the  association  shall  learn  that  these 
rules  and  regulations  have  been  violated  by  any  of  the  collecting  banks,  it 
shall  immediately  report  the  facts  to  the  chairman  of  the  clearing-house 
committee  or,  in  his  absence,  to  the  manager  of  the  clearing  house.  Upon 
receiving  information  from  any  source  that  there  has  been  a  violation  of 
the  same,  said  chairman  or,  in  his  absence,  said  manager  shall  call  a  meeting 
of  the  committee.  The  committee  shall  investigate  the  facts  and  deter- 
mine whether  a  formal  hearing  is  necessary.  In  case  the  committee  so 
concludes,  it  shall  instruct  the  manager  to  formulate  charges  and  present 
them  to  the  committee.  A  copy  of  the  charges,  together  with  written 
notice  of  the  time  and  place  fixed  for  hearing  regarding  the  same,  shall  be 
served  upon  the  collecting  bank  charged  with  such  violation,  which  shall 
have  the  right  at  any  hearing  to  introduce  such  relevant  evidence  and 
submit  such  argument  as  it  may  desire.  The  committee  shall  hear  what- 
ever relevant  evidence  may  be  offered  by  any  person  and  whatever  argu- 
ments may  be  submitted,  and  shall  determine  whether  the  charges  are 
sustained.  In  case  it  reaches  the  conclusion  that  they  are,  the  committee 
shall  call  a  special  meeting  of  the  association  and  report  thereto  the  facts, 
with  its  conclusions.  If  the  report  of  the  committee  is  approved  by  the 
association,  the  collecting  bank  charged  with  such  violation  shall  pay  to 
the  association  the  sum  of  $1,000;  and  in  case  of  a  second  violation 
of  these  rules  and  regulations,  any  collecting  bank  may  also,  in  the  dis- 
cretion of  the  association,  be  excluded  from  using  its  privileges,  directly 
or  indirectly,  and,  if  it  is  a  member,  expelled  from  the  association. 

Sec.  6.  Every  collecting  bank,  as  defined  in  section  i  of  these  rules  and 
regulations,  shall  forthwith  adopt,  by  its  board  of  directors,  a  resolution  in 
the  following  terms,  and  file  a  certified  copy  thereof  with  the  association 
as  evidence  as  therein  specified : 

Whereas  this  corporation  has  acquired  the  privilege  of  clearing  and 
making  exchange  of  its  checks  through  the  Boston  Clearing  House  Asso- 
ciation, and  is  subject  to  its  rules  and  regulations:  Now,  therefore. 

Be  it  resolved.  That  this  corporation  hereby  in  all  respects  assents  to 
and  agrees  to  be  bound  by  and  to  comply  with  all  rules  and  regulations 
regarding  collections  outside  of  the  city  of  Boston  which  may  be  established 
pursuant  to  the  constitution  of  said  association,  and  that  the  president  of 
this  corporation  is  hereby  instructed  to  file  a  certified  copy  of  this  resolu- 
tion with  the  clearing-house  association  as  evidence  of  such  assent  and 
agreement  on  the  part  of  this  corporation. 

262 


Clearing-House      Methods 

It  was  provided  that  the  above  should  go  into  effect 
on  January  i,  1900.  In  putting  the  plan  into  operation, 
the  manager  of  the  clearing  house  prepared  two  lists 
of  banks,  one  comprising  those  banks  the  location  of  which 
with  respect  to  the  closing  of  mails,  etc.,  required  that 
checks  should  be  deposited  with  the  manager  not  later  than 
I  o'clock  and  the  other  permitting  the  deposit  of  checks  not 
later  than  3  o'clock  of  each  business  day,  in  order  to  be 
sent  in  the  mail  of  the  same  day.  This  resulted  in  what  is 
in  effect  two  clearing  hours  for  the  foreign  department. 
Saturdays  are  exceptions  to  the  general  rule,  and  with 
respect  to  that  day  it  is  provided  that  all  checks  shall  be 
deposited  not  later  than  i  o'clock.  These  requirements 
were  later  changed  so  that  the  checks  to  be  so  cleared  shall 
be  deposited  not  later  than  3.30  o'clock  on  each  business 
day,  except  Saturday,  when  it  is  provided  that  they  shall 
be  received  not  later  than  1.15  o'clock,  thus  giving  the 
banks  from  fifteen  to  thirty  minutes  more  leeway  than  was 
originally  provided. 

The  regulations  for  the  collection  of  out-of-town  checks, 
formulated  by  the  manager  of  the  clearing  house,  include 
the  following: 

Every  check  must  be  stamped  by  the  bank  depositing 
it,  according  to  the  following  form : 


Received  payment  through  the 

Boston  Clearing  House. 
Prior  indorsements  guaranteed. 

Bank 

of  Boston 

by 

Cashier. 


263 


National     Monetary     Commission 


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264 


Clearing-House      Methods 

The  checks  on  each  bank  must  be  placed  in  a  separate 
package,  with  a  sHp  attached  containing  a  Ust  of  the 
checks,  the  name  of  the  bank  on  which  they  are  drawn, 
and  a  footing;  and  the  check  ticket  attached  to  the  shp 
must  also  be  filled  out  and  the  name  of  the  bank  and  the 
footing  of  the  checks  placed  thereon.  Whenever  there  is 
but  one  check  on  a  bank  it  will  still  be  necessary  to  have 
the  clearing-house  slip  attached,  with  the  name  of  the 
bank  and  the  amount  of  the  check  placed  upon  both  slip 
and  check  ticket.  These  packages  must  be  assorted  al- 
phabetically, according  to  the  names  of  the  respective 
towns  in  which  the  banks  are  situated,  and  must  be  deliv- 
ered by  the  messengers  of  the  banks  at  the  proper  desks  for 
the  respective  letters. 

By  1. 1 5  o'clock  p.  m.  on  Saturdays,  and  on  other  days 
before  3.30  o'clock  p.  m.,  each  bank  must  send  to  the 
clearing  house,  by  its  messenger,  a  ticket  showing  the  total 
amount  of  checks  left  for  collection  that  day,  and  receive 
a  charge  ticket  showing  the  date  on  which  it  is  to  be 
charged  into  the  regular  morning  settlements  against  the 
manager.  The  manager  is  known  as  No.  100,  and  joins 
in  the  settlements  on  the  same  footing  as  any  one  of  the 
banks. 

Banks  are  requested  to  see  that  all  indorsements  are  in 
order.  No  examination  of  packages  or  checks  will  be 
made  by  the  officers  or  employees  of  the  clearing  house. 

If  the  remittance  from  any  Massachusetts  bank  shall  not 
have  been  received  on  the  morning  on  which  the  charge 
tickets  are  to  be  charged  against  the  inanager  of  the  clear- 
ing house,  the  manager  will  charge  against  each  Boston 

20040 — 10 18  265 


National     Monetary     Commission 


Boston  Clearing-house. 

Gloucester  Safe  Dep.  &.  Tr.  Co., 
Gloucester,  Mass, 


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Gloucester  Safe  Dep.  &  Tr.  Co., 
Gloucester,  Mass. 


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266 


Clearing-House     Methods 

bank  its  proportionate  amount  of  such  delayed  remittance, 
as  well  as  the  amount  of  any  protested  or  unpaid  checks 
received  from  any  Boston  bank. 

New  York  exchange  and  currency  received  in  payment 
of  collections  will  be  charged  at  par  against  the  several 
Boston  banks  from  time  to  time,  under  the  direction  of 
the  clearing-house  committee,  in  proportion  to  the  busi- 
ness of  each  bank,  and  the  amounts  of  any  such  charges 
will  be  reported  to  the  president,  cashier,  or  other  repre- 
sentative of  each  bank  at  the  1.15  o'clock  clearing. 

A  fine  of  $2  will  be  collected  from  any  bank  which  is  late 
at  either  the  1.15  o'clock  or  the  3.30  o'clock  settlement, 
and  its  checks  may  be  refused  by  the  manager,  at  his  dis- 
cretion, if  presented  more  than  ten  minutes  late.  Any  bank 
not  sending  to  the  manager  of  the  clearing  house  by  1.15 
o'clock  on  Saturdays,  and  on  other  days  before  3.30 
o'clock,  a  ticket  showing  the  total  amount  of  out-of-town 
checks  it  has  deposited  at  the  clearing  house  that  day 
will  be  fined  $4.  A  fine  of  $4  will  also  be  imposed  for 
any  mistake  in  the  amount  of  such  deposit  so  reported. 
An  incomplete  or  incorrectly  filled  slip  or  check  ticket  is 
fined  $1. 

The  forms  used  by  the  foreign  department  of  the  Boston 
Clearing  House— in  fact,  the  actual  stationery — have  been 
largely  borrowed  from  the  forms  employed  in  the  regular 
clearings.  Minor  adaptations  have  been  made  in  certain 
forms,  and  in  cases  where  absolutely  necessary  new  forms 
have  been  designed  and  printed.  The  deposit  ticket,  a 
sample  of  which  is  shown  among  the  illustrations,  contains 
little  more  than  the  name  of  the  bank  making  the  deposit, 


267 


National     Monetary     Commission 


268 


Clearing-House      Methods 

the  date,  and  the  amount  of  checks  left  for  collection. 
The  receipt  corresponding  to  this,  which  is  also  repro- 
duced among  the  illustrations,  is  likewise  very  simple  in 
its  details.  There  is  the  name  of  the  bank,  the  reported 
amount  of  the  checks,  the  date  at  which  the  amount  is 
payable,  if  the  checks  prove  good,  and  the  signature  of 
the  manager. 

The  detailed  statements  of  checks  deposited  for  col- 
lection, known  as  foreign  slips,  a  sample  of  one  of  which  is 
shown  herewith,  are  of  different  colors  of  paper,  thereby 
readily  distinguishing  the  items  of  one  State  from  those  of 
another.  Rhode  Island,  for  example,  is  straw  color, 
Connecticut  blue,  etc.  This  slip  gives  the  name  and  the 
location  of  the  bank  on  which  the  checks  are  drawn  and 
the  name  of  the  bank  depositing  them  for  collection. 
There  is  a  coupon  at  the  bottom  which  recounts  the  name 
of  the  bank  making  the  deposit,  the  date,  the  name  of  the 
bank  on  which  the  checks  are  drawn,  its  location,  and  the 
amount. 

The  letter  form  used  in  transmitting  the  checks  for 
collection  to  the  several  banks  on  which  they  are  drawn 
is  presented  among  the  illustrations.  In  the  blank  space 
below  the  signature  of  the  manager  the  footings  of  the 
several  slips  prepared  by  the  banks  are  inserted.  As 
this  account  is  made  up,  the  stubs  from  the  foreign-slip 
tickets  (see  previous  illustration),  being  that  part  des- 
ignated as  the  foreign-check  ticket,  is  detached  and  is 
retained  by  the  clearing-house  manager  as  evidence  of 
the  amount  that  is  inserted  in  the  letter.  The  coupon 
at  the  Vjottom  of  the  letter  itself  is  likewise  retained  for 


269 


N  at  i  0  71  a  I     Monetary     Commission 


270 


Clearing-House      Methods 

bookkeeping  purposes  and  is  the  basis  for  charging  the 
account  with  the  bank.  The  amount  represented  by  it 
is  the  aggregate  of  all  of  the  stubs  of  the  slips  inclosed 
with  the  letter. 

For  the  purpose  of  making  up  the  accounts — that  is, 
filling  out  the  letters  of  transmission  and  otherwise  com- 
pleting the  work — a  number  of  Burroughs 's  arithmom- 
eters are  employed.  In  other  words,  the  machine  that 
is  largely  in  use  among  banks  throughout  the  United 
States  for  listing  vouchers  returned,  etc.,  is  used  in  mak- 
ing up  the  records  of  remittances.  Enough  of  these 
machines  are  used,  and  so  skillful  are  the  employees  in 
their  manipulation  of  them,  that  in  a  surprisingly  short 
period  of  time  after  the  exchanges  have  been  completed 
the  lists  for  the  individual  banks  are  made  up  and  the 
matter  placed  in  the  mails  or  the  hands  of  the  express 
companies,  as  the  case  may  be. 

The  settling  clerk's  statement,  also  shown  in  the  illus- 
trations, has  five  columns.  The  first  records  debit 
remittance  checks;  the  second  column  contains  debit  of 
uncollected  checks;  the  third  records  credit  checks  for 
collection;  the  fourth,  credit  adjustments;  and  the  fifth, 
credit  receipts.  This  sheet  in  use  is  of  the  conventional 
size,  with  the  names  of  the  banks  printed  down  the  left- 
hand  margin  and  numbered,  and  corresponding  numbers 
placed  at  the  ends  of  the  lines  on  the  right-hand  margin. 

The  bookkeeping  employed  in  the  foreign  department 
of  the  Boston  clearing  house  is  very  simple  in  character. 
The  outward  posting  mediums,  as  already  explained,  are 
the  stubs  of  the  letters.     The  inward  posting  mediums 


271 


National     Monetary     Commission 


C.  A.  RUGGLES,  Manager. 

BOSTON  CLEARING-HOUSE. 

Boston, 


To  the  Cashier  of  the 

. National  Bank  oL 


Dear  Sir ; 

Enclosed  find  checks  on  your  Bank  as  listed  below, 
for  the  amount  of  which  please  remit  by  return  mail 
a  draft  on  your  Boston  correspondent,  payable  to  the 
order  of  the  Manager  of  the  Boston  Clearing-house. 

Please  do  not  delay  the  protest  or  return  of  any 
check  not  good,  but  return  it,  under  protest  if  neces- 
sary ( deducting  check  and  fee  from  remittance) »  Any 
special  instructions  on  slip  or  check  should  be  ob^ 
served  Do  not  protest  checks  of  ten  dollars  or 
under  unless  requested  to  do  so. 
Yours  truly, 

C.  A.  RUGGLES,  Manager. 


^National  Bank- 


Date, Amount^. 


FoKM    OF    LkTTKR    of  TRANS.MIbtelON    TO   C0RRKSPONDENT8: 

272 


Clearing-House      Methods 

are  the  letters  from  the  out-of-town  banks  inclosing 
remittance  checks.  Of  necessity,  an  account  is  opened 
with  each  bank  to  which  collections  are  forwarded.  At 
the  outset  it  is  charged  with  the  amounts  sent  to  it  for 
collection,  and  in  turn,  as  remittances  are  received,  it  is 
credited. 

With  respect  to  the  inward  posting  mediums,  it  some- 
times transpires  that  the  banks  making  returns  send 
back  the  original  letter  inclosing  collections.  This,  of 
course,  answers  every  purpose  in  the  clearing  house. 

The  ledger  at  present  in  use  has  *the  names  of  the 
various  out-of-town  banks  printed  down  the  left-hand 
margins  of  the  page,  there  being  a  line  to  each.  There 
is  a  debit  and  a  credit  column  for  each  day  occupying 
the  space  to  the  right  of  the  names.  The  ledger  is  simi- 
lar in  form  to  certain  varieties  of  deposit  ledgers  in  use 
among  banks,  and  is  of  a  variety  that  is  sometimes 
described  as  a  progressive  ledger.  As  already  men- 
tioned, the  banks  are  debited  with  the  items  sent  out 
and  credited  with  the  remittances.  The  debits,  of 
course,  precede  the  credits  by  one,  two,  three,  or  four 
days,  according  to  the  location  of  the  banks.  Where- 
ever  the  remittances  come  in  promptly,  the  columns,  tak- 
ing the  banks  collectively  on  a  page,  balance.  Where- 
ever  one  or  more  remittances  are  delayed,  the  columns, 
of  course,  are  out  of  balance,  thereby  directing  attention 
instantly  to  the  delinquent. 

The  following  is  a  memorandum  of  the  volume  of  busi- 
ness in  round  figures,  handled  annually  by  this  depart- 
ment of  the  clearing  house: 


273 


National    Monetary     Commission 

1900 - $541. 000, 000 

1901 565, 000, 000 

1 902 607, 000, 000 

1903 658, 000, 000 

1904 594>  000,  cxx) 

1 905 595 , 000, 000 

1906 635, 000,  000 

1907 633, 000,000 

1908 564,  000, 000 

The  cost  of  collecting  these  items  has  averaged  about 
7  cents  per  $1,000,  the  total  cost  of  the  maintenance 
of  the  department,  including  rent,  clerk  hire,  and  all 
expenses  of  every  character,  being  about  $42,000 
annually. 

Six  hundred  and  forty-one  New  England  banks  and 
trust  companies  are  corresponded  with  at  the  present 
time,  and  the  average  number  of  packages  handled  daily 
during  the  year  1908  was  5,491.  The  average  daily 
remittances  by  correspondents  during  that  period  has 
been  94  per  cent,  which  means  that  only  6  per  cent  of 
the  amount  due  daily  was  charged  back  pro  rata,  through 
the  clearings,  to  the  banks,  in  order  that  the  manager's 
payments  and  receipts  would  each  day  exactly  balance. 
The  necessity  for  this  charge  back  of  6  per  cent  is  due 
to  the  fact  that  it  is  impossible  to  receive  returns  in  less 
than  three  days  from  banks  located  in  the  northern  part 
of  the  States  of  New  Hampshire,  Vermont,  and  Maine. 

It  is  stated  for  this  system,  by  those  who  are  in  close 
touch  with  it,  that  it  accomplishes  all  and  more  than  was 
expected  of  it,  and  that  it  has  been  the  means  of  a  big 
saving  of  money  to  the  banks.  That  the  banks  have 
supported  it  loyally  would  seem  to  be  indicated  by  the  vol- 
ume of  business  annually  turned  over  to  it  for  collection. 


274 


1 

d 

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m 
o 

CREDfT 
j  ADJUSTMENTS. 

! 

« 

i 

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i 

\ \ 

TON   CLEARING-HOUSE   SETTLIh 

CREDIT  CHECK 
FOR  COLL. 

1 

, 

1 

DEBIT 

UNCOLLECTED 

CHECKS. 

1       M 
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paHo 

1 

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National  Union 
Old  Boston  National 
St^te  National 
New  England  Nation!* 
.Atlantic  National 
Merchants  National 
Second  National 
National  Sliawiiiut 
Nat'l  B'k  of  Commerce 
Faneuil  Hall  National 
Webster  and  Atlas  Nat'l 
Eliot  National 
Boylston  National 
First  National 
National  Security 
Fourth  National 
Metropolitan  National 
Winthrop  National 
Commercial  National 

U 

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e^    «    •^f    >.T    M    rj    t^    3   (M    •r)«    »0    O    ■M    0>    O    —    'N    ^5    -^ 

^75 


Chapter  XVIII. 
THE   CHICAGO   CLEARING   HOUSE. 

DATE  AND  HISTORY  OF  FORMATION METHODS  OF  EX- 
CHANGE —  PRELIMINARY  EXCHANGES  AMONG  MEM- 
BERS— KINDS  OF  MONEY  EMPLOYED  IN  SETTLING  BAL- 
ANCES  TRADING    BALANCES — NONMEMBER    BANKS  THAT 

CLEAR — STATEMENTS  OF  CONDITION — EXPENSES  AND 
FINES  —  ADMISSIONS  AND  EXPULSIONS  —  VOLUME  OP 
CLEARINGS ADMINISTRATION. 

The  practical  utility  of  clearing  houses  had  been 
attested  in  the  United  States  by  more  than  ten  years 
of  successful  operation,  when  Chicago,  in  April,  1865, 
formed  an  association  on  lines  substantially  identical 
with  those  of  the  leading  cities  of  the  East.  Although 
the  Chicago  clearing  house  performs  essentially  the 
same  functions  as  do  the  clearing  houses  of  other  impor- 
tant centers,  yet  in  the  course  of  time  circumstances 
have  wrought  many  changes  in  its  constitution  which 
have  tended  to  give  it  a  character  peculiarly  its  own. 
The  membership  (now  20  in  number)  at  the  date  of 
the  organization  embraced  nearly  all  the  banks  and 
bankers  in  the  city.  Although  at  one  time  the  list  went 
up  to  30,  there  are  at  the  present  time  only  20  members, 
the  vicissitudes  of  the  banking  business  in  Chicago  in  the 
interval  accounting  for  the  increase  and  subsequent 
decrease.     The    membership    as    at    present    made    up 

276 


Cleariug-House      Methods 

embraces  9  national  banks,  7  trust  companies,  2  state 
banks,  the  Chicago  branch  of  the  Bank  of  Montreal,  and 
the  subtreasm^'  of  the  United  States  at  Chicago. 

The  requirements  for  membership  at  the  outset  were 
not  so  rigid  as  they  are  at  present.  Xo  minimum  limit 
was  placed  upon  the  capital  necessar}^  for  membership. 
As  a  fact,  many  of  the  members  had  but  small  capital 
and  limited  experience.  Further,  at  that  stage  of  the 
development  of  the  clearing  system  experience  did  not 
demand  what  has  since  been  found  to  be  very  essential. 

The  Chicago  clearing  house  progressed  with  uniform 
success  from  the  date  of  its  organization  in  1S65  until 
187 1,  when  all  the  interests  of  the  city  sustained  a  severe 
shock  bv  the  great  fire  which  swept  over  the  citv.  In 
that  fire  some  portion  of  the  records  of  the  clearing  house 
was  lost.  Soon  after  the  fire  the  panic  of  1873  occurred, 
and  in  that  crisis  a  number  of  the  members  fell  out  of  line. 
Still  other  vicissitudes,  some  of  which  were  peculiar  to 
the  organization  itself,  ser\^ed  still  further  to  retard  its 
growth  and  progress.  In  18S2  the  Clycago  clearing 
house  was  formally  incorporated  under  the  laws  of  the 
State. 

The  failure  of  members  in  this  organization  has  never 
given  occasion  for  litigation.  Those  members  who  have 
been  so  unfortunate  as  to  fail  have  seldom  attempted  to 
clear  on  the  day  of  their  failure.  In  most  cases  they 
have  given  notice  of  their  condition  in  ample  time  for 
their  exchange  to  be  withdrawn.  Wlien,  however,  a 
failing  bank  has  attempted  to  make  its  regular  clearings 
and  has  not  been  able  to  pay  the  balance  against  it  at 


277 


National    Monetary     Commission 

the  clearing  house,  aU  the  exchanges  presented  by  and 
against  it  have  been  returned  and  a  new  settlement 
made,  the  same  as  if  it  had  not  participated  in  the  ex- 
changes of  the  day.  In  this  way  those  who  had  pre- 
sented checks  against  the  failing  member  were  enabled 
to  return  them  to  their  customers,  thereby  intrenching 
themselves  against  loss.  No  formal  provision  was  made 
for  such  action  at  the  outset,  but  as  time  passed  on  this 
course  was  found  to  be  the  best  means  by  which  to  avoid 
serious  complications.  Accordingly,  the  rule  has  been 
embodied  in  the  constitution.  It  is  similar  in  its  pro- 
visions to  that  existing  in  the  constitutions  of  nearly  all 
the  clearing-house  associations  of  the  country. 

The  history  of  this  organization  shows  comparatively 
few  failures.  The  membership,  however,  has  been  repeat- 
edly reduced  by  consolidations. 

We  now  come  to  an  analysis  of  the  methods  of  exchange 
pursued  by  this  body,  and,  as  we  proceed,  we  shall  find 
that  in  these  details  Chicago,  quite  as  much  as  any  of 
the  larger  cities  of  the  East,  presents  certain  striking 
features  of  its  own  which  are  not  to  be  found  in  the 
others. 

The  exchanges  in  Chicago  are  made  on  each  business 
day  at  1 1  o'clock,  except  Saturday,  when  they  are  made 
at  lo  o'clock. 

Each  bank  sends  from  two  to  three  representatives  to 
the  clearing  house,  with  its  claims  separately  made  out 
against  each  of  the  other  members.  One  of  the  repre- 
sentatives of  each  bank  stations  himself  immediately 
opposite  the  desk  bearing  the  number  of  his  bank,  first 


278 


Clearing-House      Methods 

having  deposited  with  the  manager  a  ticket  which  states 
the  amount  of  the  exchanges  that  his  bank  has  sent  to 
the  clearing  house.  On  receipt  of  the  ticket  the  manager 
immediately  enters  in  the  credit  column  of  the  sheet 
before  him  the  amount  stated  thereon.  This  sheet  is 
ruled  in  four  columns,  for  the  entry  of  the  credit  and 
debit  exchanges  and  for  showing  the  credit  and  debit 
balances.  Standing  in  front  of  each  of  the  representa- 
tives of  the  banks  above  mentioned  is  the  messenger 
from  the  same  bank,  with  a  bundle  of  exchanges  ready 
to  be  delivered  at  the  desk  of  each  of  the  other  banks. 

Precisely  at  1 1  o'clock,  or  as  soon  as  all  are  present, 
a  gong  is  struck,  and  thereupon  the  messengers  begin 
the  delivery  of  the  checks,  passing  around  the  double 
row  of  desks  and  depositing  with  the  clerk  of  each  of  the 
banks  the  exchanges  drawn  upon  it.  While  delivering 
the  checks  the  messenger  passes  from  clerk  to  clerk  a 
sheet  containing  the  amounts  to  the  debit  of  each,  and 
upon  this  the  several  clerks  receipt  for  the  checks  they 
receive. 

When  the  packages  have  all  been  delivered  and  re- 
ceipted for,  they  are  taken  to  the  several  banks  by  mes- 
sengers, the  sheets  being  passed  around  by  other  messen- 
gers, who,  with  the  clerks,  remain  at  the  clearing  house. 
As  the  sheets  are  thus  being  passed  along,  each  clerk 
enters  the  amount  charged  to  his  bank  on  the  debit  side 
of  the  page  in  a  book  which  he  has  brought  with  him  for 
that  purpose. 

These  books  are  ruled  in  four  columns,  for  the  entry  of 
the   amount   brought,    the   amount   received,   the   credit 


279 


National    Monetary     Commission 

balance,  and  the  debit  balance,  respectively.  One 
column  is  filled  out  before  the  messenger  comes  to  the 
clearing  house,  and  that  is  the  amount  brought,  or,  as 
described  above,  the  credit  column. 

When  the  debit  entries  have  all  been  made  from  the 
sheets,  the  balance  is  struck  by  taking  the  difference 
between  the  total  of  the  amount  brought  and  the  amounts 
received.  Each  clerk  now  makes  out,  as  quickly  as 
possible,  a  ticket  showing  the  total  amount  brought,  the 
amount  received,  and  the  balance,  and  hands  the  same 
to  the  manager. 

It  is  clear  in  each  case  that  if  the  amount  brought 
exceeds  the  amount  received,  the  balance  will  be  in  his 
favor  and  vice  versa.  The  manager,  upon  receiving 
these  tickets,  immediately  enters  the  amounts  in  the 
debit  column  of  his  sheet,  and  the  balances  shown  in  the 
credit  balance  column,  or  the  debit  balance  column,  as 
the  case  may  be.  It  now  remains  to  foot  up  the  columns. 
If  the  amounts  brought  and  the  amounts  received  agree, 
and  if  the  debit  and  credit  balances  likewise  agree,  the 
manager  announces  that  the  work  is  correct,  and  there- 
upon the  several  clerks  immediately  return  to  their  banks. 
If,  on  the  other  hand,  these  amounts  do  not  agree,  the 
discrepancy  is  announced  by  the  manager,  whereupon  the 
clerks  proceed  to  search  for  the  error.  A  search  of  this 
kind  requires  skill  and  accuracy  at  figures,  for  it  is  fre- 
quently necessary  to  foot  up  long  columns  of  figures  and 
even  to  call  back  the  entries  between  banks  in  order  to 
locate  the  error.  If  the  mistake  is  not  soon  found,  the 
anxiety  becomes  apparent,  for  a  fine  of  $2  is  imposed  upon 


280 


Clearing-House      Methods 

the  unfortunate  member  whose  error  has  caused  the 
trouble  if  the  mistake  is  not  located  in  twenty  minutes. 

The  custom  of  exchanging  checks  and  other  items 
among  themselves  before  the  hour  for  exchanging  at  the 
clearing  house  has  grown  up  among  the  members  of  this 
organization.  For  example,  members  A,  B,  C,  and  D 
may  be  located  in  close  proximity.  Therefore,  for  con- 
venience in  making  early  entries  of  items,  they  exchange 
among  themselves  the  checks  which  they  hold  against 
each  other.  The  settlement  of  balances  arising  in  this 
way  is  made  at  the  same  time  and  in  the  same  manner  as 
if  the  exchanges  had  taken  place  at  the  clearing  house. 

All  banks  which  find  themselves  debtors  in  the  ex- 
changes are  allowed  from  12  to  12.30  o'clock  to  settle 
their  balances  with  the  manager  at  the  clearing  house. 
The  creditor  banks  receive  their  balances  between  12.30 
and  12.45  o'clock.  On  Saturdays  these  transactions  are 
one  hour  earlier. 

The  method  of  settlement  in  Chicago  differs  materially 
from  that  which  prevails  in  New  York,  Boston,  and 
Philadelphia,  and,  indeed,  from  that  of  all  other  impor- 
tant clearing  houses  in  this  country.  Less  than  25  per 
cent  of  the  balances  are  settled  with  currency  and  gold 
coin.     The  latter  is  used  only  to  a  very  limited  extent. 

The  following  is  the  substance  of  the  by-law  of  this 
organization  relating  to  kinds  of  money  to  be  used  in 
settlement  of  balances,  as  amended  in  October,  1899: 

All  payments  to  the  Chicago  clearing  house  by  the 
different  members  of  said  association  shall  be  made  in 
United  States  gold  coin  or  United  States  Treasury  certifi- 

20040 ID 19  281 


National    Monetary     Commission 

cates  therefor  payable  in  Chicago,  in  United  States  legal 
tender  notes  or  Treasury  notes,  or  United  States  Treasury 
certificates  therefor  payable  in  Chicago,  and  in  United 
States  gold  and  silver  certificates. 

All  gold  paid  to  the  clearing  house  in  settlement  of 
balances  shall  be  put  up  in  strong  canvas  bags,  each  con- 
taining $5,000;  all  coins  in  any  one  bag  to  be  full  weight 
and  of  one  denomination;  the  bags  to  be  securely  fas- 
tened with  a  lead  seal  bearing  the  name  and  clearing- 
house number  of  the  member  putting  up  such  package,  in 
such  manner  that  in  the  opinion  of  the  manager  of  the 
clearing  house  the  fastenings  can  not  be  sufficiently 
released  to  allow  of  the  removal  of  any  of  the  contents 
without  mutilating  the  seal.  Every  such  package  shall 
have  a  suitable  label  or  tag  attached,  bearing  the  name  of 
the  sealing  member,  the  amount  of  the  contents,  denomi- 
nation, date  of  sealing,  and  signature  of  the  person  or  per- 
sons duly  authorized  to  date  or  seal  the  same. 

All  currency  other  than  coin  paid  to  the  clearing  house 
in  settlement  of  balances,  except  notes  of  the  denomina- 
tion of  $50  or  larger,  shall  be  put  up  in  packages,  each 
containing  $5,000  or  $10,000.  All  the  notes  included  in 
any  package  shall  be  of  one  denomination,  inclosed  in 
bands  containing  each  100  notes  and  no  more.  The  de- 
nomination, kind  of  currency,  and  amount  shall  be  plainly 
marked  on  the  cover  of  the  package,  with  the  name  of  the 
member  of  the  association  putting  up  the  same,  date  of 
sealing,  and  signature  of  the  person  or  persons  duly 
authorized  to  date  or  seal  the  same.  Every  such  package 
shall  be  inclosed  between  cardboards  of  the  full  width  and 


282 


Clearing-House     Methods 


REPORT  TO   MANAGER. 
C,  H.  Bank  No..„ „ 


TRADES   WHOLE   BALANCE. 

PAYS   IN   S ^ 

COLLECTS   $„ .....,.:. ^ 


REPORT  TO   BANK 
C.  H.  Bank  No. 


DR.  dAL.  $ 
CR,      "      S. 


Forms  of  Reports  Used  in  Trading  Balances. 


283 


National     Monetary     Commission 

length  of  the  notes,  placed  on  the  upper  and  lower  sides 
thereof,  and  shall  be  tied  with  twine  and  securely  sealed 
with  w^ax  seals  bearing  the  imprint  of  the  member  putting 
up  the  same.  All  notes  included  in  such  package  shall  be 
in  good  condition  and  fit  for  circulation  and  of  the  denomi- 
nation of  either  $5,  $10,  or  $20. 

For  each  and  every  violation  of  any  of  the  regulations 
contained  in  the  paragraphs  relating  to  gold  and  currency 
above,  the  manager  shall  impose  a  fine  of  $5  on  the  offend- 
ing member. 

The  value  of  every  package  of  gold  or  currency  put  up 
in  accordance  with  the  provisions  of  this  by-law  shall  be 
guaranteed  by  the  member  whose  seal  it  bears,  until  and 
including  the  15th  day  of  March,  June,  September,  or 
December,  whichever  month  shall  come  next  after  its 
authorized  date,  or  redate,  and  in  case  of  any  shortage, 
either  in  count  or  weight,  the  member  putting  up  the 
same  shall  on  demand  immediately  make  good  any  such 
shortage  to  the  member  breaking  the  seal.  This  guar- 
anty shall  not  extend  to  any  package  which  shall  have 
passed  into  the  hands  of  any  person  or  corporation  not  a 
member  of  the  association. 

Chicago  has  developed  a  peculiar  custom  of  trading 
balances,  and  so  extensive  has  this  practice  become  that 
perhaps  75  per  cent  of  the  balances  are  disposed  of  in  this 
way.  It  began  many  years  ago,  and  originated  in  a  desire 
to  avoid  the  counting  and  carrying  of  so  much  money 
through  the  streets  as  would  be  necessary  to  settle  the  bal- 
ances. The  trading  is  done  mainly  by  the  clerks  at  the 
clearing  house.     As  soon  as  they  strike  their  balance,  and 


284 


Clea  ring-House      Methods 

while  the  manager  is  entering  upon  his  sheet  the  amounts 
and  balances,  and  footing  the  columns,  the  clerks  repre- 
senting the  creditor  banks  engage  in  loaning  balances  to 
the  representatives  of  the  debtor  banks.  The  clerks  are 
not  given  full  liberty  of  action,  but  are  very  generally 
instructed  by  their  banks  regarding  the  amounts  to  be 
traded  and  the  members  with  which  trades  may  be  made. 
Any  member  may  trade  its  whole  balance,  or  any  part 
thereof.  It  may  trade  its  balance  to  a  single  member,  or 
to  two  or  more  members. 

A  notable  example  of  this  kind  occurred  in  August, 
1897,  when  the  Northwestern  National  Bank  traded  its 
balance  to  15  different  banks.  The  credit  balance  of  this 
bank  was  $2,622,000,  which  amount  was  more  than  98 
per  cent  of  the  credit  balance  of  all  the  banks,  there  being 
on  that  day  only  two  other  creditor  banks  out  of  the  whole 
list  of  22  members. 

Some  banks  do  not  find  it  to  their  advantage  to  trade, 
and  hence  adjust  their  balances  by  cash  settlements.  At 
the  conclusion  of  the  trades,  the  representatives  of  the 
banks  make  out  and  hand  to  the  manager  reports  of  the 
tradings,  as  shown  by  the  accompanying  form.  This 
form,  it  will  be  noticed,  is  provided  with  a  coupon  which 
embodies  a  report  to  the  bank. 

The  formal  order  by  which  the  transfer  is  made  is  shown 
in  the  second  of  the  accompanying  forms.  Manifestly,  it 
would  be  impossible  for  the  manager  of  the  clearing  house 
to  ascertain  from  the  reports  just  illustrated  whether  a 
given  bank  had  traded  to  a  single  bank  or  to  a  number  of 
banks,  and  also  with  what  bank  or  banks  the  trade  had 


285 


National    Mojtetary     Commission 

been  negotiated.  This  fact  is  determined  by  an  order  or 
orders  upon  the  manager  of  the  clearing  house  from  the 
cashier  of  each  creditor  bank  which  has  negotiated  a  trade, 
to  pay  to  a  specified  bank  or  banks  certain  portions  of  its 
balances  each,  such  sum  to  be  deducted  from  the  balances 
due  from  the  exchange  of  that  day.  For  example,  B,  a 
creditor  bank,  gives  an  order  on  the  manager  of  the  clear- 
ing house,  signed  by  the  cashier,  to  pay  C,  D,  or  E,  or  any 
one  of  them,  a  part  of  its  balance,  or  the  whole  of  the  sum 
which  it  may  have  traded  to  them  at  the  clearing  house. 
The  manager  deducts  such  an  amount  from  the  debit  bal- 
ances due  the  clearing  house  by  C,  D,  and  E,  respectively. 
Hence  they  are  required  to  pay  to  the  clearing  house  only  the 
difference  between  such  orders  and  their  debit  balances. 

The  manager  also  obtains  another  kind  of  receipt — 
namely,  the  orders  to  the  clearing-house  manager  to  pay 
to  the  authorized  messengers  the  balances  in  cash  due 
from  the  exchanges  of  that  day.  The  form  of  this  order 
is  also  shown  in  facsimile  herewith. 

The  settlements  of  the  amounts  of  all  orders  are  made 
between  the  banks  concerned,  the  debtor  banks  giving  to 
the  creditor  banks  cashiers'  checks,  currency,  or  exchange 
for  the  amount  of  the  trade,  such  checks  always  going 
through  the  exchanges  on  the  following  day.  Suppose, 
for  example,  B's  debtor  balance  is  $75,000  to-day,  and 
that  this  amount  is  settled  by  a  trade  with  some  creditor 
bank.  B  gives  to  the  creditor  bank  a  cashier's  check  for 
$75,000,  which  the  latter  will  send  through  the  exchanges 
to-morrow  against  B.  Suppose  also  that  in  addition  to 
the  $75,000,  B's  debit  balance  goes  on  increasing  each  day. 


286 


Clearing-House      Methods 


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287 


National    Monetary     Commission 

It  is  evident  that  in  that  case  B  must  cease  to  postpone  an 
actual  settlement  by  trading  and  instead  make  a  cash 
payment  at  the  clearing  house. 

This  practice,  it  will  be  perceived,  differs  materially 
from  that  in  vogue  in  Boston  with  respect  to  borrowing 
and  loaning  balances.  In  one  case  trades  are  made  by 
the  clerks;  in  the  other  they  are  restricted  to  one  or 
another  of  the  principal  officials  of  the  bank,  who  appears 
at  the  clearing  house  simply  for  that  purpose.  In  the  one 
case  interest  is  required;  in  the  other  it  is  not.  In  the  one 
case  the  checks  on  the  debtor  members  go  through  the 
exchanges  on  the  following  day;  in  the  other  they  do  not 
so  pass  through  at  once,  but  may  be  held  over  indefinitely. 
In  the  one  case  the  trading  is  solely  an  element  of  mutual 
convenience  to  members ;  in  the  other  case  it  is  an  element 
of  gain  to  the  creditor  bank. 

Besides  the  regular  members,  there  are  about  forty 
nonmember  banks  clearing  through  the  Chicago  clearing 
house.  In  other  words,  there  is  an  average  of  two  to  each 
member.  Most  of  those  clearing  in  this  way  are  private 
banks  and  trust  companies.  Since  Illinois  heads  the  list 
of  States  in  number  of  institutions  in  this  class,  it  is  not 
siu-prising  that  the  number  in  Chicago  is  so  large,  or  that 
it  should  represent  such  a  large  fraction  of  the  clearing- 
house business.  Some  comparisons  may  be  interesting: 
In  Boston  the  members  exceed  the  nonmembers  by  about 
33  per  cent;  in  Philadelphia  there  is  at  the  present  time 
but  one  nonmember  bank,  while  in  New  York  the  list  of 
members  and  nonmembers  is  nearly  even,  there  being  a 
few  less  nonmembers  than  members. 


288 


Clearing-House      Methods 

Up  to  January,  1907,  the  Chicago  clearing  house  exacted 
no  compensation  for  permitting  outside  institutions  to 
clear  through  its  members,  but  about  that  time  an  amend- 
ment was  added  to  the  constitution  making  it  imperative 
for  a  member  bank  to  first  obtain  the  consent  of  the 
clearing-house  committee  before  it  could  clear  for  an  outside 
institution,  and  further  obligated  such  member  to  pay 
the  association  annually  for  each  of  such  outside  banks, 
as  follows: 

For  each  bank  having  a  capital  of — ■ 

More  than  $25,000  and  less  than  $50,000 $150 

More  than  $50,000  and  less  than  $200,000 250 

More  than  $200,000  and  less  than  $400,000 350 

More  than  $400,000  and  less  than  $600,000 450 

More  than  $600,000  and  less  than  $1,000,000 600 

Exceeding  $1,000,000 750 

The  amendment  further  provided  that  such  banks  and 
bankers  should,  under  proper  authority,  consent  to  the 
same  examinations  and  render  the  same  statements  of 
their  condition  as  are  required  of  the  members  of  the 
association,  and  be  subject  to  all  such  rules  and  regula- 
tions in  matters  of  common  interest  arising  from  or  affect- 
ing relations  with  banks  in  other  localities,  and  the  foster- 
ing of  sound  and  conservative  methods  of  banking,  as 
have  been  or  may  from  time  to  time  be  adopted  by  the 
association,  and  sign  an  agreement  so  to  do  in  such  form 
as  the  clearing-house  committee  may  require. 

Members  of  the  association  are  required  to  furnish  the 
manager  statements  of  their  condition,  in  accordance  with 
the  following  rule:  "Each  member  of  this  association 
shall  furnish  the  manager,  as  often  as  five  times  yearly, 
a  sworn  statement  of  its  condition,  at  such  times  as  may 
be  designated  by   the  Comptroller  of  the  Currency  for 


National    Monetary     Co  m  mission 

statements  from  national  banks;  and  at  such  other  times 
and  on  such  other  dates  as  the  clearing-house  committee 
may  require.  Said  statements  shall  be  made  in  form  and 
manner  prescribed  by  the  clearing-house  committee. 
Said  statements  shall  be  open  to  the  inspection  of  the 
members  of  this  association,  but  otherwise  shall  be  held 
strictly  confidential."  Many  of  the  Chicago  banks  vol- 
untarily publish  their  statements,  though  no  requirement 
of  the  kind  is  made  by  the  clearing-house  association. 
The  daily  clearings  are  the  only  regularly  published 
statistics  of  the  association. 

No  items  with  restricted  indorsements  are  allowed 
to  go  through  the  exchanges,  the  rule  requiring  that  all 
checks  and  other  paper  for  deposit  shall   be  indorsed  in 

blank,   or    simply    "Pay   to   or   order,"    without 

qualification. 

The  expenses  of  the  Chicago  clearing  house  are  met 
by  an  annual  assessment  of  $750  upon  each  of  the  mem- 
bers, and  the  payment  of  the  balance  after  that  amount 
pro  rata,  according  to  the  daily  average  of  exchanges 
sent  to  the  clearing  house  for  the  months  of  October, 
November,  and  December  immediately  preceding.  The 
fines  upon  the  members  are  devoted  to  the  payment  of 
expenses.  The  total  annual  appropriation  for  this  pur- 
pose for  many  years  was  in  the  neighborhood  of  $8,000, 
but  the  increase  in  expenses  incident  to  the  occupation  of 
new  quarters  has  made  a  considerably  larger  appropria- 
tion necessary. 

The  fines  enforced  by  the  Chicago  clearing  house 
are  unusually  heavy:  For  failure  to  be  represented  punc- 


290 


Clear  in  g-House      Methods 

tually  at  the  morning  exchanges  for  the  first  five  minutes, 
or  part  thereof,  the  fine  is  $3 ;  for  the  second  five  minutes, 
or  part  thereof,  $10;  and  for  tardiness  exceeding  ten 
minutes,  $25.  So  prompt,  however,  have  been  the 
members  that  the  $25  fine  has  never  been  imposed,  and 
in  only  a  few  instances  has  the  $10  fine  been  assessed. 

Banks  desiring  to  become  members  make  a  formal 
application  to  the  clearing-house  committee.  The  latter 
thoroughly  examines  their  condition  and  standing  and 
makes  a  report  to  the  association.  The  applicant  then 
may  be  admitted  on  receiving  the  affirmative  vote  of 
three-fourths  of  the  members  of  the  association.  The 
members  are  required  to  pay  an  admission  fee  of  $1,000, 
and  to  assent  to  the  articles  of  incorporation  and  by-laws, 
thus  being  put  upon  the  same  footing  as  the  original 
members.  The  by-laws  provide  that  no  new  members 
shall  be  admitted  except  banks  having  their  principal 
office  located  in  the  city  of  Chicago,  organized  under  the 
laws  of  the  United  States  or  under  the  laws  of  the  State 
of  Illinois,  and  having  done  business  therein,  with  their 
subscribed  capital  stock  fully  paid  in,  for  a  period  of  at 
least  six  months  prior  to  the  application  for  membership. 
It  is  further  provided  that  no  new  member  shall  be 
admitted  except  banks  having  a  paid-in  capital  of  at 
least  $500,000,  which  capital  shall  be  kept  intact  during 
the  membership.  The  assistant  treasurer  of  the  United 
States  located  in  Chicago  may,  upon  application,  be 
admitted  to  membership  without  the  payment  of  an 
admission  fee,  but  shall  have  no  voice  in  the  manage- 
ment.    Any    member    may    withdraw    at    pleasure,    first 


291 


National    Monetary     Commission 

paying  its  due  proportion  of  all  expenses  incurred  and 
signifying  its  intention  to  the  clearing-house  committee 
to  withdraw. 

In  many  clearing-house  associations  it  is  easier  to 
expel  members  than  to  admit  them,  the  vote  being 
a  majority  for  expulsion  and  three-fourths  for  admis- 
sion. At  Chicago,  however,  the  conditions  of  admission 
and  expulsion  are  the  same,  the  requirements  in  each 
case  being  a  vote  of  three-fourths  of  all  the  members. 

In  many  of  the  most  important  cities  of  the  country 
clearing-house  loan  certificates  have  been  issued  from 
time  to  time  in  seasons  of  great  pressure — for  example, 
as  in  the  panics  of  1873  a-^^  1893 — thus  giving  elasticity 
to  the  currency  in  times  of  greatest  need  and  affording 
relief  to  the  banks  from  the  terrific  strain  upon  them. 
In  Chicago,  however,  up  to  1907,  such  action  had  never 
been  taken,  although  in  1893  the  subject  was  under 
serious  consideration  and  a  vote  of  15  to  9  was  cast  in 
favor  of  an  issue.  At  this  time  extensive  loans  were 
made  to  the  members  who  were  most  in  need,  the  loans 
amounting  to  $1,745,000.  This  represents  the  largest 
amount  ever  loaned  in  Chicago  in  this  manner,  and  it 
was  all  repaid  within  sixty  days  from  date.  On  other 
occasions  banks  that  have  been  temporarily  embarrassed, 
and  which  upon  the  careful  examination  by  the  clearing- 
house committee  were  found  to  be  solvent  and  in  pos- 
session of  collateral  sufficient  to  secure  their  loans,  have 
been  promptly  assisted  by  their  fellow-members  in  the 
clearing  house,  each  furnishing  aid  in  proportion  to  its 
capital  and  deposits.     In   1907,  however,  the  conditions 


292 


Clearing-House     Methods 


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National    Mofietary     Commission 

were  such  that  the  issue  of  loan  certificates  seemed  a 
desirable  step  to  take,  and  they  were  accordingly  put 
out  under  the  resolutions,  and  in  the  amounts,  described 
in  a  special  chapter  on  the  subject. 

The  Chicago  clearing  house  has  experienced  various 
changes  in  the  number  of  its  members.  The  member- 
ship at  one  time  was  as  high  as  30,  and,  as  already  stated, 
is  at  present  only  20;  yet  the  record  of  clearings  shows 
an  almost  uninterrupted  increase  from  the  beginning  of 
the  organization. 

No  losses  have  ever  occurred  from  the  enormous  trans- 
actions which  have  been  repeated  from  day  to  day 
during  the  thirty-two  years  of  the  history  of  the  asso- 
ciation. These  exchanges  are  conducted  by  two  men — 
the  manager  and  one  assistant — and  their  record  is  em- 
bodied in  four  books.  One  contains  simply  the  copy  of 
the  manager's  proof  sheet,  showing  the  debit  and  credit^ 
exchanges  and  balances  of  each  bank,  and  the  total  of 
the  same  for  all  the  banks.  Another  book,  the  items  in 
which  are  posted  from  the  first,  contains  a  record  of  the 
daily  debits,  credits,  and  balances  of  each  bank,  kept 
apart  from  a  similar  record  of  each  of  the  other  banks. 
The  third  book  contains  a  transcript  of  the  total  clearings 
and  balances  by  days,  weeks,  and  months.  The  fourth 
book  is  a  record  of  the  amount  and  kind  of  money  paid 
by  and  to  the  several  banks  in  settlement  of  balances. 
From  these  records  the  total  transactions  of  each  bank 
with  the  clearing  house  for  a  given  period  may  be  readily 
ascertained.  The  annual  transactions  beginning  with 
1865  have  been  computed  and  posted  in  this  manner. 


294 


Clearing-House      Methods 

In  the  rules  of  the  Chicago  clearing  house  due  provi- 
sion is  made  for  the  administration  of  its  affairs  in  all 
details.  The  several  powers  are  lodged  in  a  president, 
vice-president,  manager,  secretary,  treasurer,  and  clearing- 
house committee.  In  addition,  five  directors  are  charged 
with  the  responsibility  of  attending  to  all  matters  per- 
taining to  the  corporate  existence  of  the  association, 
the  Chicago  clearing  house  being  the  only  incorporated 
clearing  house  at  present  existing  in  America. 

The  annual  meeting  is  held  on  the  third  Tuesday  in 
January,  when  the  ofhcers,  directors,  clearing-house 
committee,  and  manager  of  the  clearing  house  are  elected 
by  ballot.  A  majority  vote  of  a  quorum  determines 
the  result,  a  quorum  being  a  majority  of  all  the  asso- 
ciated banks.  At  this  meeting  each  member  of  the 
association  must  be  represented  by  one  or  more  duly 
authorized  persons,  and  is  entitled  to  one  vote.  Besides 
the  general  meetings,  the  president  is  required  to  call 
special  meetings  whenever  he  may  deem  it  necessary,  or 
whenever  he  is  so  requested  by  five  members  of  the 
association,  or  by  the  clearing-house  committee. 

The  president  and  vice-president  are  constituted  the 
officers  of  the  association  and  must  be  elected  from  among 
the  officers  of  members  of  the  association.  Upon  the 
president,  and  in  his  absence  upon  the  vice-president,  de- 
volves the  duty  of  presiding  at  all  meetings  of  the  associa- 
tion and  of  calling  the  special  meetings  under  the  condi- 
tions named  above.  The  manager  has  immediate  charge 
of  all  the  business  of  the  clearing  house,  subject  to  the  con- 
trol  of  the   committee.     He   supervises   and   directs   the 


295 


National    Monetary     Commission 

work  of  the  clerks  and  messengers  while  in  the  clearing 
house,  and,  in  addition,  is  ex  officio  secretary  and  treasurer 
of  the  association.  As  treasurer,  he  has  charge  of  the 
funds  belonging  to  the  association  and  disburses  the  same 
on  the  order  of  the  clearing-house  committee.  He  is 
required  to  keep  a  correct  record  of  all  the  money  received 
and  disbursed  on  account  of  the  association,  and  to  sub- 
mit a  detailed  statement  of  the  same  at  the  annual  meet- 
ing and  whenever  requested  by  the  clearing-house  commit- 
tee. As  secretary,  he  keeps  the  minutes  of  the  proceedings 
of  the  association  in  a  book  provided  for  that  purpose. 
His  salary  is  fixed  by  the  association  and  he  is  required  to 
give  a  bond  with  sureties  in  a  sum  of  not  less  than  $20,000, 
to  be  approved  by  the  clearing-house  committee.  He  is 
required  to  report  to  the  committee  all  violations  of  the 
charter  or  by-laws  that  may  come  to  his  notice.  He 
holds  office  until  the  next  annual  election,  but  is  liable  to 
suspension  by  the  clearing-house  committee  or  expulsion 
by  the  association. 

The  clearing-house  committee  consists  of  five  members 
and  is  elected  by  majority  vote  by  ballot  at  the  annual 
meeting  of  the  association.  Upon  this  committee  de- 
volves the  chief  responsibility  for  the  successful  conduct 
of  the  affairs  of  the  association.  It  is  its  duty  when  occa- 
sion demands  to  procure  a  suitable  room  or  rooms  for  the 
clearing  house,  with  all  necessary  articles  for  the  con- 
venient transaction  of  its  business.  The  committee  ap- 
points the  necessary  clerks,  establishes  rules  to  be  observed 
at  the  clearing  house  in  cases  not  provided  for  in  the  con- 


296 


Clearing-House      Methods 

stitution,  but  subject  to  the  approval  of  the  association, 
and  has  general  supervision  of  clearing-house  affairs. 

The  clearing-house  committee  determines  the  assess- 
ment of  each  member  for  its  quota  of  expenses,  and  orders 
the  payment  of  bills  by  drawing  on  the  treasurer  for  the 
same.  The  committee  hears  and  determines  all  disputes 
arising  between  members  of  the  association,  when  sub- 
mitted to  it  by  the  parties  in  dispute,  thus  performing  a 
function  sometimes  discharged  by  a  separate  committee 
known  as  the  "  arbitration  committee."  A  record  of  each 
case  of  dispute  is  kept  in  a  book  provided  for  that  purpose, 
which  book  is  kept  at  the  clearing  house  and  is  open  to  the 
inspection  of  all  the  members.  The  committee  fills  vacan- 
cies in  the  offices  or  other  committees,  and  has  power  to 
suspend  the  manager  or  any  clerk,  and  any  member  of 
the  clearing  house,  whenever  such  action  is  deemed  ad- 
visable. Finally,  it  is  the  duty  of  the  committee,  when- 
ever it  mav  seem  to  be  necessary,  to  examine  any  member 
of  the  association  and  establish  a  scale  of  fines  for  errors, 
disorderly  conduct,  or  other  irregularities  of  the  repre- 
sentatives of  the  members. 


20040 — 10 20  297 


Chapter  XIX. 
THE  ST.  LOUIS  CLEARING  HOUSE. 

EARLY  HISTORY SCOPE  OF  MEMBERSHIP PLAN  OF  AD- 
MINISTRATION— MANAGEMENT  OF  CLEARINGS — RECORDS 
KEPT   BY    THE    MANAGER. 

The  members  of  the  St.  Louis  Clearing  House  Associ- 
ation have  stood  together  with  remarkable  unanimity  on 
the  uniform  rates  of  collection  which  were  introduced  on 
March  i,  1895,  and  their  success  is  justly  attracting  the 
attention  of  similar  associations  throughout  the  country. 

The  St.  Louis  association  was  organized  in  1868,  in  the 
midst  of  the  period  of  reconstruction  and  when  the  country 
was  slowly  recovering  from  the  blight  of  civil  war.  At 
the  beginning  there  were  35  members,  and  in  five  years  the 
list  had  grown  to  41.  This  was  in  the  troublous  time  of 
1873,  when  the  institution  of  clearing-house  loan  certifi- 
cates first  became  general,  and  which  has  since  proved 
invaluable  in  similar  crises.  St.  Louis  joined  the  other 
leading  associations  at  that  time  in  the  issue  of  these 
certificates,  but  to  what  extent  it  is  not  known,  the  records, 
unfortunately,  having  been  lost  in  a  fire.  In  subsequent 
periods  of  financial  stringency,  except  in  1907,  the  asso- 
ciation has  not  found  it  necessary  to  resort  to  the  issue 
of  such  certificates,  although  in  1893  some  of  the  mem- 
bers were  hard  pressed  and  obtained  relief  through  the 
association.  The'  membership  has  greatly  diminished 
since  the  date  of  organization,  and,  strange  to  say,  is  not 

298 


Clearing-House      M  e  t  h  o  d  s 

half  as  great  now  as  in  1873.  Some  failures  have  occurred, 
but  the  change  has  been  due,  in  the  main,  to  consolida- 
tion and  to  voluntary  liquidation. 

Originally  the  membership  embraced  private  banks, 
savings  banks,  and  state  and  national  banks,  but  now  no 
private  institutions  are  included.  The  present  list  com- 
prises 17  members,  there  being  9  state  banks  and  trust 
companies,  6  national  banks,  and  the  German  Savings 
Institution.  Besides  these,  the  post-office  clears  without 
the  full  power  of  members,  and  is  assessed  not  in  propor- 
tion to  clearings,  but  for  a  definite  amount,  fixed  at  $40  a 
year. 

Banks  may  become  members  of  the  association  by  a 
two-thirds  vote  of  all  the  members  and  by  the  payment 
of  an  admission  fee  of  $1,000  in  addition  to  the  annual 
assessment  for  expenses;  but,  before  applicants  can  be 
referred  to  the  association  for  admission,  their  merits 
must  be  passed  in  review  by  the  committee  of  manage- 
ment, and  they  must  have  a  paid-up  capital  of  not  less 
than  $500,000.  Any  member  may  be  expelled  by  a 
three-fourths  vote  of  the  members  for  violation  of  any 
of  the  articles,  by-laws,  or  rules  of  the  association.  Like- 
wise, any  member  may  be  suspended  by  the  committee 
of  management,  provided  a  majority  at  least  of  the  com- 
mittee is  present,  and  that  the  vote  of  those  present  is 
unanimous.  It  will  be  noted  that  the  vote  for  expulsion 
is  greater  than  that  required  for  admission.  This  is  the 
reverse  of  the  rule  in  most  associations,  for,  ordinarily,  it 
is  easier  to  get  rid  of  a  member  than  it  is  to  admit  him  to 
membership. 


299 


National    Monetary     Commission 

Besides  the  members,  there  are  35  outside  institutions 
clearing  through  the  association,  9  of  which  are  trust 
companies,  16  are  state  banks,  i  is  a  savings  bank,  and  9 
are  national  banks.  The  members  clearing  for  outside 
banks  and  trust  companies  are  liable  for  their  checks  and 
certificates  of  deposit,  the  same  as  for  their  own;  and 
"their  liability  continues  until  after  the  completion  of  the 
exchanges  of  the  morning  next  following  the  receipt  of 
notice  of  discontinuance  of  such  agency." 

Section  3  of  article  1  of  the  constitution  provides  as 
follows : 

The  officers  of  the  association  shall  consist  of  a  president  and  vice- 
president,  who  shall  be  selected  from  among  the  members  of  the  associa- 
tion, and  elected  by  ballot  at  a  stated  meeting  in  January,  annually,  and 
shall  hold  their  offices  until  their  successors  are  chosen  and  qualified,  but 
shall  not  be  eligible  for  reelection  for  more  than  two  consecutive  years 

Most  clearing  houses  have  embodied  in  their  constitu- 
tions similar  provisions,  except  that  it  is  unusual  to  pro- 
vide that  members  shall  not  be  eligible  for  reelection  for 
more  than  two  consecutive  years.  There  are  also  elected 
at  the  same  annual  meeting  a  manager  and  committee  of 
management,  as  opposed  to  the  usual  custom  of  appoint- 
ment of  the  manager  by  the  clearing-house  committee, 
and  the  election  of  the  latter.  In  the  hands  of  the  com- 
mittee of  management  is  placed  the  power  to  examine  the 
books  and  accounts  of  any  member  of  the  association, 
whenever  they  may  deem  it  necessary,  and  to  employ  ac- 
countants to  aid  in  such  examination.  They  are  author- 
ized to  suspend  any  bank  from  the  privileges  of  the  clear- 
ing house  until  the  association  has  an  opportunity  to  act 
upon  it. 


Clearing-House      Methods 

The  president  or,  in  his  absence,  the  vice-president 
presides  at  all  meetings  of  the  association.  He  is  re- 
quired to  call  meetings  of  the  same  whenever,  in  his 
opinion,  the  interests  of  the  association  require  it,  or 
whenever  requested  to  do  so  by  the  committee  of  man- 
agement or  any  tfiree  members  of  the  association.  The 
manager,  in  addition  to  the  usual  duties  falling  to  his 
office,  acts  as  secretary  and  treasurer  of  the  association. 

Each  member  is  required  by  the  constitution  to  furnish 
the  manager,  for  publication,  "a  sworn  statement  of  its 
condition  at  such  times  as  may  be  designated  by  the 
Comptroller  of  the  Currency  or  the  Secretary  of  State  for 
statements  from  national  or  state  banks,  and  at  such 
times  and  dates  as  the  clearing-house  committee  may  re- 
quire. Such  statements  are  made  in  the  form  and  manner 
prescribed  for  statements  from  national  and  state  banks, 
and  are  open  to  the  inspection  of  members  of  the  associa- 
tion." This  provision  applies  with  equal  force  to  all 
banks  not  members  of  the  association  clearing  through 
members,  but  not  to  trust  companies  enjoying  such  privi- 
leges. Such  statements  are  now  published  in  the  daily 
press. 

The  expense  of  printing  is  not  borne  equally  by  the 
members,  but  is  apportioned  in  the  same  manner  as  the 
other  expenses.  Each  bank  pays  $250  annually  in  ad- 
vance, and  the  expenses  necessary  after  that  amount  are 
assessed  quarterly  upon  the  members  according  to  the 
average  daily  amount  of  exchanges  which  each  has  sent 
to  the  clearing  house  during  the  preceding  three  months. 
Each  nonmember  clearing  through  a  member  pays  $250 


301 


National    Monetary     Commission 

a  year  in  advance,  the  manager,  in  January,  sending  a 
draft  for  this  amount  through  the  clearing  bank  against 
said  nonmember. 

The  fines,  which  amount  to  from  $250  to  $850  a  year, 
are  collected  from  the  banks  by  the  manager  and  are  paid 
by  the  offending  clerks  or  by  their  banks,  according  to  the 
nature  of  the  offense.  The  total  expenses  of  the  associa- 
tion average  about  $25,000  a  year. 

We  have  now  to  analyze  the  operations  as  they  take 
place  at  the  clearing  house  from  day  to  day,  and  in  this 
we  shall  find  that  St.  Louis  differs  in  some  important  de- 
tails from  associations  in  the  East.  The  clearing  room  is 
a  beautiful,  centrally  located  apartment,  and  sufficiently 
elevated  to  command  a  delightful  view  of  the  city.  Out- 
side of  New  York,  it  is  the  most  commodious  and  best- 
lighted  clearing  room  in  the  United  States,  but  it  is  not 
so  artistically  equipped  as  the  clearing  room  at  Pittsburg. 

On  each  business  day  the  clerks  appear  at  the  clearing 
room  at  10.30  o'clock,  except  on  Saturdays,  and  then  at 
9  o'clock,  with  their  demands  separately  made  out  against 
each  of  the  other  banks,  and  with  their  items  bound  with 
a  rubber  band — not  placed  in  envelopes,  as  is  the  case  in 
most  large  cities.  A  facsimile  of  one  of  the  lists  used  for 
the  purpose  is  given  in  the  illustration.  Immediately 
upon  his  arrival  each  clerk  delivers  his  items  at  the  desks 
of  the  several  members  upon  which  they  are  drawn.  The 
settling  clerks  sort,  according  to  the  number  of  the  banks, 
the  packages  as  they  are  deposited  by  the  delivery  clerks. 

In  five  minutes  after  the  hour  appointed  for  the  ex- 
changes the  settling  clerks  are  in  position,  and  at  the  tap 


302 


Debit  List. 
St.  Louis  Clearing-House, 


190 


3  Boatmen's  Bank 3 

6  Central  National  Bank 6 

7  Commonwealth  Trust  Co 7 

11  Franklin  Bank 11 

13  German  American  Bank 13 

14  German  Savings  Institution 14 

15  St.  Louis  Union  Trust  Co 15 

16  International  Bank 16 

19  Merchants' -Laclede  Nat.  Bank 19 

21  Mercantile  Trust  Company 21 

22  Mississippi  Valley  Trust  Co 22 

26  National  Bank  of  Commerce 26 

27  South  Side  Bank 27 

28  State  National  Bank  of  St.  Louis 28 

29  Third  National  Bank 29 

32  Mechanics  American  National  Bank 32 

38  Post  Office ■ 38 

Checks  or  other  items  cleared  through  a  Member  of  this  Association 
on  a  Bank  or  other  Institution  not  a  Member  thereof  shall  be  listed 
on  and  fastened  to  a  separate  slip,  and  the  total  footing  of  the  slip 
entered  as  one  item  on  the  regular  clearing  slip.  The  clearing  of  such 
items  loosely  or  in  any  other  manner  than  herein  provided  is  prohibited. 

Clearing  Through  Members. 

13  German  American  Bank. 

26  National  Bank  of  Commerce. 

29  Third  National  Bank. 

26  National  Bank  of  Commerce. 

32  Mechanics-American  National  Bank. 

32  Mechanics-American  National  Bank. 


Banks  and  Trust  Companies. 

Bremen  Ban  k 

Broadway  Savings  Trust  Co 

Cass  Avenue  Bank 

Chippewa  Bank 

City  National  Bank 

Commercial  Trust  Co 

East  St.  Louis,  Illinois  State  Trust  Co. 
Bank 

East  St.  Louis,  Southern  Illinois  Na- 
tional Bank 

East  St.  Louis,  Union  Trust  and  Savings 
Bank 

Farmers'  &  Merchants'  Trust  Co 

Grand  Avenue  Bank 

Granite  City,  First  National  Bank 

Granite  City, Granite  City  National  Bank . 

.Jefferson  Bank 

.Jefferson  &  Gravois  Trust  Co 

Lafayette  Bank 

Lemay  Ferry  Bank 

Tjowell  Bank 

Madison,  Ills.     First  National  Bank 

Manchester  Ban k 

Mercantile  National  Bank 

Northwestern  Savings  Bank 

Savings  Trust  Co 

Scruggs,  Vandervoort  &  Barney  Bank... 

Soutliern  Commercial  and  Savings 
Ban  k 

St.  Louis  County  Bank 

Trust  Company  of  St.  Louis  County 

Union  Station  Bank 

Vandeventcr  Trust  Co 

Washington  National  Bank 

Webster  Groves — Bank  of 

Wellston — J'irst  National  Bank 

Wei  Iston— State  Ban  k 

West  St.  Louis  Trust  Co 

Broadway  National  Bank 


29  Third  National  Bank. 

32  Mechanics-American  National  Bank. 

29  Third  National  Bank. 

32  Mechanics-American  National  Bank. 

7  Commonwealth  Trust  Co. 

26  National  Bank  of  Commerce. 

29  Third  National  Bank. 

29  Third  National  Bank. 

26  National  Bank  of  Commerce. 

3  Boatmen's  Bank. 

29  Third  National  Bank. 

32  Mechanics-American  National  Bank. 

26  National  Bank  of  Commerce. 

29  Third  National  Bank. 

21  Mercantile  Trust  Co. 

29  Third  National  Bank. 

29  Third  National  Bank. 

3  Boatmen's  Bank. 

13  German  American  Bank. 

21  Mercantile  Tru.st  Co. 

11  Franklin  Bank. 

26  National  Bank  of  Commerce. 

32  Mechanics-American  National  Bank. 

29  Third  National  Bank. 

26  National  Bank  of  Connnerce. 

26  National  Bank  of  Commerce. 

29  Third  National  Bank. 

16  International  Bank. 

29  Third  National. 


Fac-simile  of  Debit  List  Used  in  St.  Louis  Clearincj-IIouhe. 


303 


National     Monetary     Commission 

of  the  bell  the  distributing  clerks  proceed  in  line  around 
the  room,  passing  along  the  sheet  containing  a  list  of 
their  exchanges,  to  be  receipted  for  by  the  settling  clerks. 
The  credit  and  debit  exchanges  and  the  balances  are  listed 
by  the  manager  in  the  usual  way  on  his  proof  sheet. 
After  striking  the  balance  he  calls  off  the  credit  and  debit 
balances  and  they  are  listed  by  the  clerks  on  sheets  pre- 
pared in  blank  form  for  that  purpose  and  taken  back  to 
their  banks.  The  taking  of  such  copies  is  optional  with 
the  members,  it  being  intended  for  the  information  of  any 
banks  that  may  desire  them.  Hence  the  representatives 
of  some  of  the  smaller  members  do  not  remain  to  take 
them,  but  return  to  their  banks  immediately  after  the 
proof. 

One  hour  after  the  exchanges  the  creditor  members 
return  to  receive  their  balances,  whereupon  the  manager 
issues  to  them  his  certificates  of  indebtedness  by  the 
debtor  members,  payable  on  demand  to  said  creditor 
members  "without  recourse  upon  any  member  of  the 
association  after  2  o'clock  p.  m.  of  the  same  day,  except 
the  debtor  members  named  in  such  certificates,  and  ex- 
cept on  half -holiday  Saturdays,  on  which  days  the  cer- 
tificates of  indebtedness  are  issued  without  recourse  upon 
any  member  of  the  association  after  11  o'clock  a.  m.  of 
the  same  day,  except  the  debtor  members  named  in  such 
certificates." 

Usually  the  manager's  certificates  are  cashed  at  the 
counter  of  the  debtor  bank  upon  presentation  of  the  same 
by  the  creditor  bank,  but  sometimes  they  are  certified  by 
the  latter  and  sent  through  the  exchanges  against  them 


304 


ST.  LOUIS  CLEARING  HOUSE. 

Date                                190 

Total  Clearinqs    $ 

balance:3. 

Banlc  No 

Cr 

3 
Boatmen's, 

G 
Central  National, 

7 
Commonwealth  Tr.  Co. 

11 
Franklin, 

13 
German  American, 

14 
German  Savings, 

15 
St.  Louis  Union  Tr.  Co. 

16 
International, 

19 
Mercliants'-Laclede. 

21 
Mercantile  Trust, 

22 
Mississippi  Valley  Tr.  Co. 

2b 
,    Nat'l  Rank  Commerce, 

27 
South  Side, 

28 
State  Nat.  Bank, 

29 
Third  National, 

32 
Mechanics'  Am.  Nat'i, 

38 
Post  Office, 

TOTAL, 

■ 

Form  Used  fuh  Listing  Balances  in  St.  Louih  Cj.EAiuN';-HoiiaE, 


305 


National     Monetary     Commission 

on  the  following  day.  Some  banks,  however,  refuse  to 
certify,  but  give  a  cashier's  check  to  a  creditor  member 
in  exchange  for  a  manager's  check  held  against  them,  and 
the  former  is  sent  through  the  exchanges  on  the  follow- 
ing day.  Manifestly  there  is  no  occasion  for  the  appear- 
ance of  the  debtor  memibers  at  the  clearing  house  in  the 
settlement  of  balances.  Immediately,  however,  after  issu- 
ing his  checks  to  creditor  members  the  manager  fills  out  a 
blank  giving  the  clearings  and  balances,  as  shown  in  the 
illustration,  and  delivers  the  same  to  the  debtor  bank. 

In  this  way  the  member  banks  know  whether  the 
amount  of  their  balance,  as  reported  to  them  by  the  clerk 
on  his  return  from  the  exchanges,  proves  with  that  listed 
by  the  manager,  and  also  what  banks  hold  the  manager's 
certificates  of  indebtedness  upon  them  and  in  what  amount. 
If  the  total  of  the  manager's  checks  issued  against  them 
agrees  with  the  amount  of  their  balance,  they  know  that  to 
be  correct  the  manager's  checks  presented  at  their  coun- 
ter by  the  creditor  members  must  agree  with  the  amounts 
of  the  same  as  Usted  on  the  card  by  the  manager.  This 
custom  of  delivering  cards  is  practically  unknown  to  other 
associations. 

The  by-laws  define  proper  matter  for  clearing  as 
follows : 

1.  All  checks  or  drafts  upon  or  certificates  of  deposit, 
demand  or  matured,  of  any  member  of  the  clearing  house 
or  any  bank  or  trust  company  clearing  through  any 
member. 

2.  Any  other  matter  specially  agreed  to  by  any  mem- 
ber or  any  bank  or  trust  company  clearing  through  it 
until  notice  is  given  to  the  contrary. 

306 


Clearing-House      Methods 


ST.  LOUIS  CLEARING  HOUSE. 

lOOI 

-     -- t         .        ' 

1 
ClPtarlngSi          .       .       -       ^P 

BalcincOi      •       .       .       .       $ 

No- 

Df^bit,     .       ,       ,              !p  ,       , 

.Checks  Favor. 

Nn.                                                  $ 

,, 

^, 

jj 

,^ 

t( 

t( 

„ 

« 

• 

Form  of  Manager's  Report  of  Cleabinqs,  Balances,  Etc, 


307 


National     Monetary     Commission 

3.  Mercantile  or  other  paper  payable  at  any  bank  or 
trust  company  when  such  clearance  shall  have  been  author- 
ized by  the  said  bank  or  trust  company,  but  not  otherwise. 
All  unstamped  and  illegibly  stamped  items  shall  be  con- 
sidered improper  matter  for  clearing.  Express  money 
orders,  railroad  and  other  pay  checks  are  not,  by  the 
rules  of  the  association,  proper  matter  for  clearing,  but 
their  clearing  is  allowed  by  consent  of  the  banks  at  which 
they  are  payable,  and  only  on  conditions  prescribed  by 
such  banks.  Such  orders  and  pay  checks  "must  be  Hsted 
on  separate  slips,  fastened  together  firmly  with  the  slips, 
and  the  full  amount  of  them  entered  as  one  check  upon 
the  regular  clearing  slip."  For  violation  of  this  rule 
any  member  is  liable  to  a  fine  of  $2  for  clearing  improper 
matter. 

The  manager  keeps  the  following  records  of  transactions : 

1 .  A  record  of  daily  clearings  and  balances  of  each  mem- 
ber. The  same,  by  addition,  is  found  for  weeks,  months, 
or  years. 

2.  The  clearings  register  showing  the  daily  clearings, 
debits,  and  credits  of  each  member. 

3.  A  record  of  total  credit  clearings  of  each  member 
by  months. 

4.  A  record  of  the  clearings,  debit  and  credit,  by  months 
for  each  member,  a  total  of  the  same  being  made  at  the  end 
of  the  year. 

5.  A  monthly  and  annual  total  of  the  clearings  of  all 
the  members. 

6.  A  condensed  record  of  the  published  bank  state- 
ments. 


308 


Clearing-House      Methods 

Although,  as  we  have  seen,  there  has  been  a  great  de- 
crease in  the  membership  from  the  original  number,  the 
volume  of  exchanges  has  gone  on  increasing,  and  the  asso- 
ciation now  takes  fifth  rank  among  the  clearing  houses  of 
the  country. 

Thus  we  have  reviewed  the  methods  and  manner  of 
administration  of  our  five  largest  clearing  houses,  and 
with  a  few  minor  exceptions,  designed  generally  to  meet 
some  local  condition,  the  conduct  of  the  other  clearing 
houses  of  the  country  is  along  very  similar  lines. 


309 


INDEX. 


"Acceptable  matter"  for  clearing,  8,  49-51,  58. 

at  New  York,  2 10-2 11. 

at  St.  Louis,  306,  308. 
Administration  of  clearing  house,  30-35. 

at  Boston,  257-258 

at  Chicago,  295-297. 

at  New  York,  159-163. 

at  Philadelphia,  234-236. 

at  St.  Louis,  300-301. 
Admission  to  membership.      (See  Membership.) 
Admission  charges,  at  New  York,  165. 
Admissions,  committee  on,  t,t„  34. 

at  New  York,  162,  165. 
Advertising,  clearing  house,  22. 

Agreement,  New  York  clearing  house,  regarding  outside  collections,  form 
of,  187. 

Ohio    Bankers'   Association,   No.   2,   for    mutual    protection    in    panic, 

131-135- 
Altoona,  Pa.,  reports  on  financial  integrity  at,  21-22. 
Application  to  clear  for  another  bank,  New  York  clearing  house,  form  of, 

173- 
Arbitration  committee,  34. 

at  New  York,  163. 

at  Philadelphia,  235. 

functions  of,  discharged  by  clearing-house  committee  at  Chicago,  297. 
Arithmometer,  use  of,  in  foreign  department  of  Boston  clearing  house,  271. 
Assessment,  at  Bo.ston,  for  printing  and  on  nonmembers,  256. 

at  Chicago,  for  expenses,  290. 

at  New  York,  21 1-2 13. 
Assets,  need  of  elasticity  in,  of  I)anks,  27. 

unavailable,  cash  settlements  to  counteract  maintenance  of,  27-28. 
Atlanta,  Ga.,  clearing-house  loan  certificates  issued  at,  1893,  107,  109. 

clearing-house  loan  certificates,  1893,  form  of,  108. 
use  of  in  general  circulation,  109. 

plan  for  clearing  country  checks,  62-63. 
Austin,  Tex.,  settlement  of  balances  at,  by  option  of  cash  or  draft,  45. 
Authorization.     (Sec  Resolutions.) 


3" 


National     Monetary     Commission 

Average  condition,  weekly  statement  of,  form  of,  at  Boston  clearing  house, 
for  associated  banks,  to  face  252. 

at  New  York  clearing  house,  for  associated  banks,  183. 

for  nonmember  banks,  No.  2,  io  face  184. 
at  Philadelphia  clearing  house,  for  banks  and  trust  companies,  to  face 
230. 
Average  daily  clearings,  at  New  York  for  fifty-five  years,  table,  217 

at  New  York  in  1906,  220. 
Averages,  weekly  statement,  form  of,  at  Boston,  used  by  associated  banks, 

253- 

at  New  York,  used  by  associated  banks,  184. 

by  nonmembers,  175.  , 

by  trust  companies,  176. 

at  Philadelphia,  by  banks,  228. 
Balance,  definition  of,  7,  36. 
Balances,  borrowing  and  loaning  of,  at  Boston,  247-252. 

borrowing  and  loaning  of,  at  Boston,  form  used  in  transfer,  250. 

See  also  Balances,  trading  of. 

debit,  manager's  receipt  for,  at  Boston,  form,  248. 

ticket  used  in  connection  with  payment  of,  at  Boston,  form,  246. 

listing,  in  St.  Louis  clearing  house,  form  used  in,  305. 

method  for  determining  at  New  York,  55. 

paid  in  cash  at  New  York  for  fifty-five  years,  221. 

ratio  of,  to  clearings,  at  New  York,  220-221. 

settlement  of.      {See  Settlement  of  balances.) 

striking  instances  of  large  and  small  amounts  of.  New  York,  222. 

trading  of,  at  Chicago,  284-288. 

orders  used  in  transfer,  287,  293. 
report  used  in  transfer,  283. 
Baltimore,  clearing-house  loan  certificates,  issued  at,  1873,  83,  89. 

clearing-house  loan  certificates  issued  at,  in  1893,  100. 

minimum  rates  of  exchange  established  at,  16. 

settlement  of  exchanges  in  money  at,  38. 

settling  clerks'  methods  at,  52. 
Bank  Clerks'   Beneficial  Association,  clearing-house  fines  at  Philadelphia 

donated  to,  233. 
"  Bank  draft,"  or  "  banker's  draft,"  definition,  6. 
Bank  examiners,  clearing  house,  137-147. 
Bank,  national.      {See  National  bank.) 

Bank  of  America,  depository  for  New  York  clearing-house,  204. 
Bank  of  the  Union,  expulsion  of,  from  the  New  York  clearing  house,  164. 
Banks,  associated,  of  Boston,  statement  of  weekly  averages  of,  form,  to  face 

252.     Sec  also  Boston  clearing  house. 
Bay  City,  Mich.,  alternation  of  clearing  bank  at,  48. 
"Bill,"  definition,  5. 

312 


Clearin^-Hotlse     Methods 

"  Bill  of  exchange,"  definition,  5. 

Binghamton,  N.  Y.,  settlements  at,  by  drafts  on  another  city,  45. 

Birmingham,  Ala.,  clearing-house  loan  certificates  issued  at,  1893,  109-no. 

clearing-house  loan  certificates  at,  1893,  form,  iii. 
Bond,  given  by  clearing-house  manager  at  Philadelphia,  236. 
Bookkeeping,  Boston  clearing  house,  foreign  department,  271-273. 
calculating  interest  on  loan  certificates,  113-115. 
Chicago  clearing  house,  279-280,  294. 
"debits  of  exchange,"  and  treatment  of  checks,  65. 
Borrowing  and  loaning  of  balances,  at  Boston,  44,  247-252. 
at  Chicago,  44,  284-288. 
at  Pittsburg,  44. 

comparison  of  methods  of,  at  Boston  and  Chicago,  288. 
Borrowing,  information  concerning,  secured  by  clearing-house  bank  exam- 
iners, 144. 
Boston  clearing  house,  240-274. 
administration,  257 

borrowing  and  loaning  of  balances,  247-252,  288. 
clearing-house  loan  certificates,  of  1861,  242-243. 
of  1873,  83,  86,  243. 
of  1890,  92,  93,  243. 
of  1893,  98-100,  243. 
of  1893,  form  of,  97. 
of  1895,  112,  243. 
of  1907,  123-124. 

of  1907,  method  of  calculating  interest  on,  1 14-1 15. 
foreign  slip  and  check  ticket,  form,  266. 

described,  269. 
foreign  department,  exchange  ticket,  form,  270. 
letter  of  transmission,  form  of,  272. 
receipt,  form  of,  268. 
receipt  for   pro  rata  charge  on   account  of  uncollected  checks, 

form,  264. 
routine  of  clearing  out-of-town  items,  263,  265. 
settling  sheet,  form,  275. 
volume  of  business,  274. 
receipt,  manager's,  for  debit  balances,  form,  248. 
national  loan  and,  243. 

outside  banks  and  trust  companies,  rules,  concerning,  254. 
routine,  243-245,  263. 
settling  balances,  method  of,  44,  244. 

foreign,  263-265. 
ticket  used  with  payment  of  debit  balances,  form,  246. 
weekly  statement  of  averages  by,  form,  to  face  252. 
weekly  statement  to  clearing  house,  by  associated  banks,  form,  253. 

20040 — 10 21  313 


National     Monetary     Commission 

Buffalo  clearing  house,  decorative  scheme  of  room  of,  48. 

clearing-house  loan  certificates,  of  1893,  105. 

method  of  calculating  interest  on,  115. 

kinds  of  money  acceptable  in  making  settlements,  38. 

ratio  of  balances  to  clearings,  37. 

receipt,  given  by  creditor  banks  on  receipt  of  balances,  form,  40. 
given  to  debtor  banks  on  payment  of  balances,  form,  42. 

uniform  rates  of  exchange  fixed  at,  15. 
Building  company.  New  York  clearing  house,  157-158. 
Building  fund,  New  York  clearing  house,  156-157. 

Burroughs's  arithmometer.in  foreign  department,  Boston  clearing  house,  27 1 . 
California,  contemplated  plan  of  clearing-house  bank  examiners,  146-147. 
Camp,  William  A.,  manager  of  New  York  clearing  house,  160. 
Canada,  settlements  in  government  legal-tender  notes,  38. 
Canadian  currency,  uniform  discount  agreed  on  at  Seattle,  23. 
Canton,  Ohio,  clearing-house  check,  form,  1907,  126. 

paychecks  used  at,  1907,  125. 
Cash  balances  paid  in  at  New  York  clearing  house  for  fifty-five  years,  221. 
Cash  settlements,  recommended,  27,  28. 
Center,  financial,  defined,  6. 
Central  agency,  need  of,  to  disseminate  information  regarding  outstanding 

paper,  25. 
Centralization  of  banking,  clearing  houses  a  means  to,  24. 
Certificates,  building,  of  New  York  clearing  house,  157-158. 

clearing  house.     {See  Clearing-house  certificates.) 

four  kinds,  43. 

gold.     {See  Gold  certificates.) 

issued  by  Treasurer  of  United  States  for  clearing-house  purposes,  at 
Philadelphia,  227. 

manager's,  at  St.  Louis,  304-306. 

of  indebtedness  at  St.  Louis,  304,  306. 

participating.  New  York,  1907,  118. 
Chairman  of  Clearing  House  Association,  Boston,  257. 

Charge  ticket,  Boston  clearing  house,  foreign  department,  how  used,  265. 
Charleston,  settlement  optional  by  cable  or  draft  at,  45. 
Chattanooga,  advertising  through  clearing  house  at,  22. 

clearing-house  loan  certificates,  1893,  112. 

hour  of  exchanges,  49. 
Chester,  Pa.,  reports  on  fraud  required  at,  22. 
Check,  definition,  6. 

back  of,  showing  indorsements  after  typical  journey,  73. 

clearing  house.      {See  Clearing-house  check.) 

country,  argument  for  charge  for  collection  of,  74. 
collection  of,  59-63. 
collection,  typical  procedure  showing  need  of  reform  in,  64-74. 


314 


Clearing-House     Methods 

Check — Continued. 

country — continued. 

difficulties  of  handling,  59,  60. 

plans  for  clearing  of,  60,  61. 

typical  journey  of  a,  64-74. 

uniform  rates  for  collection  of,  60. 
employer's  pay.     (See  Pay  checks.) 
face  of,  after  typical  journey,  6g. 
itinerary  of,  shown  by  map,  7 1 . 
"local,"  definition,  9. 
manager's.     (See  Manager's  check.) 
methods  of  transport  to  clearing  house,  52. 

Ohio  Bankers'  Association  No.  2,  agreement  relating  to,  133-134. 
Check  ticket  and  foreign  slip,  Boston  clearing  house,  form,  266. 
Chicago  clearing  house,  276-297. 

clearing-house  bank  examiners  at,  138-140. 
clearing-house  check,  form,  120. 
clearing-house  loan  certificates,  1907,  121-124. 
fines  for  tardiness  at  exchanges,  53. 
settling  balances,  method  of,  44. 
order  on  manager  for  balance  due,  form,  293. 
ratio  on  balances  to  clearings,  37. 
trading  balances  at,  284-288. 

reports  used  in,  form,  283. 
transferring  balance  at,  form  of  order,  287. 
Cincinnati  clearing  house,  clearing-house  checks  of,  1907,  127. 
clearing-house  loan  certificates,  1873,  83,  89-90;   1893,  105.  . 

form  of,  1893,  104. 
errors  in  exchanges,  method  of  preventing  at,  54. 

no  fine  if  reported  immediately,  56. 
settling,  time  of,  at,  43.  ^ 

exceptional  rule  for,  52. 
Circulating  certificates,  or  "scrip,"  use  of,  at  Los  Angeles,  1907,  129-130. 
Civil  war,  clearing  houses  in,  12. 
Boston  clearing  house  in,  242. 
effect  on  clearings  at  New  York,  218. 
"Clearance,"  definition,  5. 
"Clearing,"  definition,  4-5. 

Clearing,  for  nonmembers.      (See  Nonmembers,  regulations  concerning.) 
by  telephone,  at  South  Bend,  Ind.,  53. 
hours,  at  various  clearing  houses,  49. 

two,  of  Boston  foreign  department,  263. 
improper  matter  for,  51,  59. 
matter,  8,49-51,58,59. 

at  New  York,  2 10-21 1. 

at  St.  Louis,  306,  308. 

315 


National     Monetary     Commission 

Clearing — Continued . 

room,  at  New  York,  190. 
at  St.  Louis,  302. 
Clearing  house,  definition,  4,  11. 
Clearing-house  association,  annual  meeting,  and  representation  in,  35. 

See  also  Administration  and  under  names  of  cities. 
Clearing-house  associations  of  California,  plan  for  cooperation  of,  146-147. 
Clearing-house  bank  examiners,  137-147. 

Chicago,  138-140. 

Kansas  City,  144. 

Los  Angeles,  144. 

Minneapolis,  140-141. 

New  York,  opposition  to,  147. 

Philadelphia,  145. 

St.  Louis,  141-143. 

St.  Paul,  141. 

San  Francisco,  144. 
Clearing  house,  building  of  New  York,  213. 
Clearing  House  Building  Company,  New  York,  213. 
Clearing-house  certificates,  circulating  or  "scrip,"  129-131. 

gold  coin  and  legal  tender,  suggested  by  Gallatin,  152. 

gold.  New  York,  form  of,  face,  206. 
New  York,  form  of,  back,  207. 
Philadelphia,  225. 

kinds  of,  75,  204. 

negotiable  at  Boston,  254. 

usee}  in  liquidation  of  balances,  New  York,  202,  204. 
Clearing-house  check.  Canton,  Ohio,  1907,  125,  127. 

Canton,  Ohio,  form,  126. 

Chicago,  1907,  1 21-123. 
form  of,  1 20. 

Cincinnati,  1907,  127. 

Cleveland,  1907,  127,  129. 
Clearing-house  circulation  certificates,  129-131. 
Clearing-house  committee.       See  Committee,  clearing-house.) 
Clearing-house  due  bills,  at  Philadelphia,  226,  227-229. 
Clearing-house  gold  certificates.      (See  Clearing-house  certificates,  gold.) 
Clearing-house  loan  certificates,  75-136. 

circulation  of,  not  currency,  76. 

not  used  as  money,  except  in  South,  116. 

criticism  of,  met,  115-116. 

definition  of,  75-76. 

effect  of  borrowing  balances  on,  at  Boston,  251-252. 

emergency  circulation  under  this  title  in  Southeast,  112. 


316 


Clearing-House     Methods 

Clearing-house  loan  certificates — Continued, 
how  used,  best  illustrated  in  East,  1 1. 

as  protection  in  panic,  21,  45. 

in  saving  use  of  cash,  77. 

beneficial  efi'ects  of  first  issue  of,  81.  * 

interest  on,  method  of  calculating,  1 13-115. 

rates  of,  78. 

rates  of,  on  issues  of  i860- 1864,  81-83. 

rate  of,  at  New  York  in  1873,  85. 

rate  of,  at  New  York,  1884,  90. 
Clearing-house  loan  certificates,  issues,  of  1860-1896,  80-113. 
of  1907,  1 17-137. 
Atlanta,  108. 
Baltimore,  of  1873,  83,  89. 

forrn  of,  99. 
Birmingham,  Ala.,  iii. 
Boston,  of  1873,  83,  243. 

of  1890,  92,  93,  94,  98. 

of  1893,  form  of,  97. 

of  1895,  112. 

of  1907,  123-124. 

of  various  dates,  243. 
Chicago,  of  1907,  1 21-123,  292. 
Cincinnati,  of  1873,  83,  89,  90. 

of  1893,  form  of,  104. 
Cleveland,  of  1907,  127-129. 
Detroit,  form  of,  106. 
Fargo,  N.  Dak.,  of  1907,  129. 

form  of,  128. 
lyOS  Angeles,  of  1907,  129. 
Louisville,  of  1891,  95. 
New  Orleans,  of  1873,  83,  89. 

form  of,  102. 

of  1879,  90. 
of  1893,  100. 
New  York,  of  i860,  80,  81. 

of  1861,  1863,  1864,  82,  83. 

of  1873,  83. 

of  1873,  form  of,  84. 

of  1884,  90. 

of  1890,  91,  92. 

of  1891,  92. 

of  1893,  98. 

of  1907,  117-121. 


317 


National     Monetary     Commission 

Clearing-house  loan  certificates — Continued. 
New  York — Continued. 

aggregate  amount  of  since  i860,  121. 
amount  of  used  in  settling  balances  in  1908,  208. 
attitude  of  members  toward,  79. 
Oklahoma,  of  1907,  131. 
Philadelphia,  of  1873,  83,  86. 
of  1873,  form  of,  87. 
of  1890,  94. 
of  1893,  100. 
of  1907,  124-125. 
St.  Louis,  of  1873,  83,  89. 
of  various  dates,  298. 
redemption  of,  78. 

in  1873,  collaterals  for,  85. 
smallest  denominations  issued,  1 10. 
Clearing-house  loan  committee.     {See  Committee,  loan.) 
Clearing-house  note  depository  certificates,  proportion  of  used  in  settling 

balances  at  New  York,  208. 
Clearings  at  New  York,  amount  of  first,  154. 
at  New  York,  average  daily,  220. 
for  fifty-five  years,  217. 
volume  of,  217,  222. 
ratio  of  balances  to,  220,  221. 
two  a  day,  50,  57. 
Cleveland,  loan  certificates  and  clearing-house  checks  issued  at,  1907,  127. 
Coin  certificates,  45. 

Coin,  use  of  in  settling  balances  at  Boston,  244. 
Collateral,  amount  deposited  to  secure  loans  in  panic  of  1907,  135. 
Collecting.     {See  Collection.) 
Collection,  definition,  7. 
charges,  15-20. 

See  also  Collection  of  items, 
cost  of,  Boston  foreign  department,  274. 
inclosure  sheet,  use  of,  65. 
items,  definition,  8. 
of  checks,  routine  of  handling,  64-74. 
of  items,  regulation  of,  15-20,  25,  179,  185-187. 
uniform  rates  of,  at  St.  Louis,  298. 
Collections,  country  or  outside,  Boston,  261-262. 
Kansas  City,  plan  for,  61,  62. 
New  York,  179,  185-187. 
Committee, 

arbitration,  33,  34. 

at  Philadelphia,  235. 
at  New  York,  163. 

318 


Clearing-House     Methods 

Committee — Continued. 

clearing  house,  30,  32-33. 
at  Boston,  257,  258. 
at  Chicago,  140,  296-297. 
at  New  York,  161-162,  169. 
at  Philadelphia,  234-235. 

reports  of  clearing-house  bank  examiners  to,  at  Chicago,  140. 
conference,  33,  34. 

at  New  York,  162. 
exchange,  34-35. 
executive,  30,  32. 
loan,  T,T„  78. 

at  Detroit,  107. 
at  New  Orleans,  loi. 
at  New  York,  118,  161. 
nominating,  33,  34. 
at  Boston,  257. 
at  New  York,  163. 
of  management,  30,  32. 

at  St.  Louis,  300. 
on  admissions,  33,  34. 

at  New  York,  162,  165. 
Committees,  32-35. 
Conference  committee,  duties  and  election  of,  33,  34. 

at  New  York,  162. 
Consent  to  clear  for  another  bank,  form  of,  174. 
Constitution  of  New  York  clearing  house,  drafting  of,  154-155. 

provisions  of,  159-179. 
Cost  of  collecting,  Boston  clearing  house,  foreign  department,  261-262. 
Creditor  banks,  receipt  given  by,  at  Buffalo  on  receipt  of  balances,  form,  40. 
"Credit  ticket,"  of  New  York  clearing  house,  194. 
Country  collections.      {See  Collections.) 
Courts,  Pennsylvania,  decision,  that  loan  certificates  are  not  money,  116. 

decree  in  Keystone  National  Bank  case,  238. 
Currency  certificates,  43,  44. 

Boston  clearing  house,  28-29. 
New  York  clearing  house,  28-29. 
Currency,  depositories  for,  28. 
shipped  by  express,  25. 
system,  defects  of,  cause  of  panic  of  1907,  117. 

clearing-house  loan  certificates  as  a  remedy  for,  77. 
use  of,  in  settlements  at  Chicago,  282. 
Curtis,  George,  drafting  of  constitution  of  New  York  clearing  house  by,  155. 
proposes  committee  on  arbitration  at  New  York,  161. 
amendment  concerning  nonmembers,  167. 


319 


National     M  o  n  e  t  ar  y     Commission 

Daily  clearings,  average  at  New  York  for  fifty-five  years,  217. 

at  New  York  in  1906,  220. 
Danville,  111.,  settlement  of  balances  direct  between  banks,  43. 
Dayton,  Ohio,  cashing  manager's  checks  at,  43. 

Debit  balances,   form  of  ticket  used  in  connection  with  payment  of,  at 
Boston,  246. 

list  used  in  St.  Louis  clearing  house,  303. 
"  Debits  of  exchange,"  65. 
Debtor  banks,  form  of  receipt  given  to  on  payment  of  balances  at  Buffalo, 

42. 
Defaulting  members,  at  New  York,  action  regarding,  208,  209. 

at  Philadelphia,  rule  concerning  use  of  collateral  security  of,  232. 

Ohio  Bankers'  Association  No.  2,  treatment  of,  133. 
Delivery  clerk,  duties  of,  at  New  York,  191,  195. 
"Delivery  clerk's  receipts,"  192. 

Depository,  coin,  for  clearing  house  indicated  in  Gallatin's  "cash  house," 
152. 

of  Boston  clearing  house,  254. 
Depository  certificates,  44,  45. 

Deposits,  of  city  customers,  clearing-house  rules  concerning  limitations,  20 
Deposit  ticket,  Boston  clearing  house,  foreign  department,  form,  266. 
Des  Moines,  Iowa,  express  money  orders  cleared  at,  50. 
Detroit,  appointment  of  loan  committee,  1893,  107. 

clearing-house  loan  certificates  used  at,  106. 

two  clearings  a  day  at,  56,  57. 
Draft,  defined,  6. 
Drafts,  use  of,  in  United  States  extensive,  58. 

use  of,  by  smaller  clearing  houses  foreshadowed  by  Gallatin,  153, 
growing,  58. 
Due  bills,  clearing-house,  employed  at  Philadelphia,  227-229. 

form  of,  used  at  Philadelphia,  226. 

in  Keystone  National  Bank  failure,  237. 

loan  certificates  regarded  as,  116. 
Edmunds,  F.  W.,  devised  coin  certificates,  45. 

Empire  City  Bank,  expulsion  of,  from  New  York  clearing  house,  164. 
Employers'  pay  checks,  use  of,  in  Philadelphia  panic  of  1907,  124-125. 
Errors,  adjustment  of,  at  New  York,  209. 

Cincinnati  method  to  prevent,  in  exchanges,  54. 

fines  for,  at  New  York,  215-216. 

in  exchanges,  checking  of,  at  New  York,  200. 

reclamations  for,  at  Boston,  245. 
at  New  York,  210. 
Examination  of  banks  by  Boston  clearing-house  committee,  255. 
Examiners,  clearing-house  bank,  26,  137-147. 


320 


Clearing-House      Methods 

Exchange,  charges  for  sale  of,  20. 

definition  of,  5. 

of  drafts,  daily  at  London,  Gallatin  on,  151. 

of  items,  results  of,  36. 

premium  on,  at  St.  Joseph,  20. 
Exchange  committee,  34-35. 
Exchanges,  before  clearing,  at  Chicago,  281. 

hour  of  making,  48. 

method  of  making,  48-49,  53,  54. 
at  Chicago,  278-280,  281. 

at  New  York,  prior  to  establishment  of  clearing  house,  148-150. 
at  New  York,  190-202. 
at  Philadelphia,  224. 
at  St.  Louis,  302-304. 

time  taken  to  make,  55. 

volume  of  at  New  York,  217-222. 

See  also  Clearing,  and  Settlement  of  balances. 
Exchange  slip,  at  New  York,  form  of,  193. 

use  of,  191,  195. 
Exchange  ticket,  Boston  foreign  department,  270. 
"Executive  committee,"  30,  32. 
Expenses,  at  Boston,  for  printing,  256. 

at  Chicago,  how  met,  290. 

at  New  York,  211-212,  213. 

at  Philadelphia,  apportionment  of,  for  printing,  233. 

at  St.  Louis,  301-302. 
Express  money  orders  cleared  in  Des  Moines,  50. 
Expulsion,  at  Boston,  rules  concerning,  256. 

at  Chicago,  rules  concerning,  292. 

at  New  York,  164,  166. 

at  St.  Louis,  299. 
Failure,  action  of  Boston  clearing  house  in  cases  of,  255-256. 

provision  for  protection  against,  by  Ohio  Bankers'  Association  No.  2, 

133- 
Failures,  in  history  of  Philadelphia  clearing  house,  236. 

of  Marine  Bank  and  Wall  Street  Bank  in  1884,  effect  on  clearing  house 

at  New  York,  219. 
result  of,  in  regulations  for  nonmembers  at  New  York  clearing  house, 

168-169. 
treatment  of,  by  Chicago  clearing  house,  277,  278. 
use  of  clearing-hou.se  bank  examiners  to  prevent,  137. 
Fall  River,  Mass.,  draft,  45. 

two  clearings  a  day,  method  described,  56. 
Fargo,  N.  Dak.,  items  for  outsiders  cleared  at,  50. 
clearing-house  loan  certificates  at,  form,  128. 
in  1907,  129. 

321 


National     Monetary     Commission 

Farmers  and  Mechanics'  National  Bank,  depository  for  Philadelphia  clear- 
ing house,  225. 
Financial  depression  of  1890,  forces  leading  to,  91. 

stringency.      {See  Panic.) 
Fines,  abuse  of  loan  certificates  restricted  by,  116. 
for  failure  of  bank  to  meet  its  requirements,  38. 
lateness  at  clearing,  amounts  of,  53. 

mistakes,  55. 
in  Boston  clearing  house,  foreign  department  of,  267. 
in  Chicago,  290,  297. 
for  errors,  280. 

for  violation  of  regulations,  284. 
in  Cincinnati,  none  for  mistakes  if  reported  at  once,  56. 
in  New  York,  198,  214,  215,  216. 

collected  from  1885  to  1908,  214. 
for  transferring  loan  certificates  to  nonmembers,  204. 
in  Philadelphia,  233. 
in  St.  Louis,  302. 

for  clearing  improper  matter,  308. 
*' First  ticket,"  at  New  York,  191. 

form  of,  194. 
Foreign  department  of  Boston  clearing  house,  259-275. 

See  also  Boston,  foreign  department. 
Foreign  slip  and  check  ticket,  Boston  clearing  house,  form,  266. 

description,  269. 
Forfeiture  of  privileges  at  St.  Joseph,  Mo.,  19. 
Forgan,  J.  B.,  on  clearing-house  bank  examiners,  138. 
Forms: 

agreement  to  comply  with  rules  regarding  outside  collections,   New 

York,  187. 
application  to  New  York  clearing  house  to  clear  for  another  bank,  173. 
check,  after  typical  journey,  back,  showing  indorsements,  73. 
after  typical  journey,  face,  69. 

issued  by  group  2,  Ohio  Bankers'  Association,  130. 
clearing  house.  Canton,  Ohio,  126. 
clearing  house,  Chicago,  1 20. 
clearing-house  loan  certificates,  Atlanta,  108. 
Baltimore,  99. 
Birmingham,  Ala,  m 
Boston,  97. 
Cincinnati,  104. 
Detroit,  106. 
Fargo,  N.  Dak.,  128. 
New  Orleans,  102. 
New  York,  84. 
Philadelphia,  87. 

322 


Clearing-House      Methods 

Forms — Continued. 

consent  of  New  York  clearing  house  to  clear  for  another  bank,  174. 

debit  list,  St.  Louis,  303. 

due  bills,  Philadelphia,  226. 

exchange  slip,  New  York,  193. 

exchange  ticket,  Boston,  foreign  department,  270. 

foreign  slip  and  check  ticket,  Boston,  266. 

gold  certificate,  New  York,  back,  207. 

face,  206. 
letter  of  transmission,  Boston,  foreign  department,  272. 
listing  balances,  form  used  in,  at  St.  Louis,  305. 

National  bank  statements,  form  used  in  tabulating  at  New  York,  181. 
order  used  in  transferring  balances  that  have  been  loaned,  Chicago,  287. 

on  Chicago  clearing-house  manager  for  balances  due,  293. 
proof  sheet,  New  York,  201. 
receipt,  given  by  foreign  department,  Boston,  268. 

given  for  pro  rata  charge  on  account  of  uncollected  checks,  Boston 
foreign  department,  264. 

given  by  creditor  banks  on  receipt  of  balances,  Buffalo,  40. 

given  to  debtor  banks,  on  payment  of  balances,  Buffalo,  42. 

manager's,  for  debit  balances,  Boston,  248. 

manager's,  New  York,  205. 

settling  clerk's.  New  York,  196. 
report,  manager's,  of  clearings,  balances,  etc.,  St.  Louis,  307. 

settling  clerk's,  of  daily  balances.  New  York,  203. 

used  in  trading  balances,  Chicago,  283. 
resolution  authorizing  exchanges  through  a  member  bank.  New  York, 

172. 
settling  sheet,  Boston  foreign  department,  275. 
settling  clerk's  statement.  New  York,  197. 

State  bank  statements,  form  used  in  tabulating,  at  New  York,  182. 
statement  required  of  trust  companies.  New  York,  180. 
statement,  required  of  trust  companies  by  New  York  Clearing  House 

Association,  180. 
statement,  daily,  by  banks  of  Philadelphia,  230. 

statement,  weekly,  of   average  condition,  Boston,  of  the  associated 
banks,  to  face  252. 

New  York,  of  the  associated  banks,  183. 

New  York,  of  nonmember  banks,  to  face  184,  No.  2. 

New  York,  summary  of,  to  face  184,  No.  i. 

Philadelphia,  of  banks  and  trust  companies,  to  face  230. 

of  averages,  Boston,  used  by  associated  banks,  253. 

New  York,  required  of  associated  bank.s,  184. 

New  York,  required  of  nonmember  banks,  175. 

New  York,  required  of  trust  companies,  176. 

Philadelphia,  required  of  banks,  228. 

323 


National     Monetary     Commission 

Forms — Continued. 

ticket,  first  or  credit,  New  York,  194. 
second,  New  York,  199. 
small,  New  York,  193. 

used  in  connection  with  payment  of  debit  balances,  Boston,  246. 
Fort  Wayne,  Ind.,  advertisements,  22. 

cashing  manager's  checks  at,  43. 
Fourth  National  Bank,  failure  of,  in  Philadelphia,  236. 
Fraud,  cooperation  to  prevent,  22. 

Frederick,  Md.,  option  of  cash  or  draft  in  settlements  at,  45. 
Fremont,  Ohio,  draft,  45. 

Furniture,  arrangement  of,  in  clearing  house,  47. 
Gallatin,  Albert,  suggestion  for  clearing  house,  151-153. 
Gibbons,  J.  S.,  on  early  exchange  methods  in  New  York,  149-150. 
Gilpin,  William  J.,  manager  New  York  clearing  house,  160. 
Gold  certificates,  clearing  house,  on  subtreasuries,  recommendation  for  en- 
largement of,  restriction  of,  26. 

clearing  house,  at  New  York,  202,  204. 
form  of,  face  206. 
form  of,  back  207. 
settling  balances  with,  202,  208. 
United  States,  used  in  settling  balances  in  New  York,  202,  208. 
Gold  coin  and  notes,  fund  of,  at  Boston,  254. 

handling  of,  in  settling  balances  at  Boston,  244. 
method  of  handling,  at  Chicago,  282. 
packages  of,  rules  concerning,  at  Milwaukee,  39. 
used  in  settlements  at  New  York,  202. 
depository  certificates,  45. 
Hamilton,  Canada,  money  acceptable  in  clearing  house  at,  38. 
Hartford,  Conn.,  draft,  45. 

Hastings,  Nebr.,  banks  alternate  weekly  as  clearing  house,  48. 
History  of  clearing  houses  in  United  States.      {See  under  names  of  cities.) 
Holyoke,  Mass.,  draft,  45. 
Houston,  Tex.,  regulation  of  rates  of  exchange  by  clearing-house  association 

of,  16,  17. 
Inclosure  sheet,  collection,  use  of,  65. 

Indorsements,  facsimile  of,  on  check  after  typical  journey,  73. 
requirements  for,  51. 
restricted,  51. 

at  Chicago,  290. 
at  New  York,  211. 
Insolvency,  action  in  case  of,  of  members  at  New  York,  209. 
Interest,  method  of  calculating  on  clearing-house  certificates,  113-115. 
rates  of.      {See  Rates  of  interest.) 


324 


Clearing-House      Methods 

"Item,"  definition 'of,  8. 

Items,  included  in  statements  at  Boston  and  New  York,  difference  in,  255. 

number  reported  at  New  York  and  Philadelphia,  231. 
Itinerary  of  a  check  on  a  typical  journey,  70-72. 
Jacksonville,  Fla.,  option  of  cash  or  draft  in  settlements  at,  45. 

cashing  manager's  check  at,  43. 
Jacksonville,  111.,  banks  alternate  monthly  as  clearing  house,  48. 
Kansas  City,  Mo.,  option  of  cash  or  draft  in  settlement  at,  45. 

cashing  manager's  checks  at,  43. 

plan  for  clearing  country  checks,  61,  62. 

system  of  clearing-house  bank  examiners  at,  144. 
Keystone  National  Bank  and  loan  certificates  in  1890,  94. 

failure  of  and  litigation  of  clearing  house  at  Philadelphia  over,  236-239. 
Law,  New  York  State  banking,  as  affecting  relation  of  trust  companies  to 

clearing  house,  177-178. 
Ledger,  progressive,  use  of,  in  Boston  foreign  department,  273. 
Legal  tenders,  clearing  house,  used  in  settling  balances  at  New  York,  208. 

United  States,  used  in  settling  balances  at  New  York,  208. 
Letter  of   transmittal,  form  of,  of  foreign  department  of  Boston  clearing 

house,  272. 
Liability,  for  manager's  check,  43. 
Liquidation  of  balances,  action  on,  by  Boston  clearing  house  in  1857,  242. 

use  of  clearing-house  certificates  in,  at  New  York,  204. 
Listing  balances,  form  used  at  St.  Louis  clearing  house,  305. 
Loan  certificates.     {See  Clearing-house  loan  certificates.) 
Loaning   and    borrowing   of    balances.      {See    Borrowing   and    loaning   of 

balances.) 
Loan  committee.      {See  Committee,  loan.) 

Loans,  clearing-house  bank  examiners'  reports  on,  at  Chicago,  139. 
"Local  check,"  definition,  9. 

London,  system  of  exchange  of,  referred  to  by  Gallatin,  151. 
Los  Angeles,  clearing-house  bank  examiners  at,  144. 

issue  of  loan  certificates  and  circulating  certificates  at,  1907,  1 29-131. 

gold  acceptable  in  settlement,  38. 

two  clearings  a  day  at,  56,  57. 
Loss,  provision  in  case  of,  at  Boston,  in   issuing  loan  certificates  in  1907, 
123-124. 

provisions  against,  by  New  Orleans  banks,  103. 
Losses,  absence  of,  at  Chicago,  294. 

usefulness  of  clearing-house  bank  examiners  in  providing  for,  138. 
Louisville,  Ky  ,  fine  for  mistakes,  56. 

loan  certificates,  issue  of,  189 1,  95. 

method  of  calculating  interest  on  loan  certificates  at,  115. 


325 


National     Monetary     Commission 

Lowell,  Mass.,  bank  to  act  as  clearing  house  chosen  at  annual  meeting,  48. 

draft,  45. 
Lyman,  George  D.,  manager  of  New  York  clearing  house,  160. 
Manager  of  clearing  house,  31. 

at  Boston,  258. 

foreign  department,  260. 

at  Chicago,  295-296. 

at  New  York,  160. 

at  Philadelphia,  236. 

at  St.  Louis,  300,  301. 
Manager's  check,  liability  for,  43. 

settlement  by,  43-44. 

at  Philadelphia,  229. 
Manager's  certificates,  at  St.  Louis,  304-306. 
Manufacturing  concerns,  compelled  payment  of  loans,  27. 
Massachusetts  and  foreign  department  of  Boston  clearing  house,  259. 
Matter  for  clearing,  8,  49-51,  58,  59. 

at  New  York,  2 10-2 11. 

at  St.  Louis,  306-308. 
Meetings  of  clearing-house  association,  annual,  at  Boston,  257. 

at  Chicago,  295. 

at  New  York,  159. 
Membership,  clearing-house  association,  Boston,  256. 

Chicago,  276-277,  291. 

changes  in  size  of,  294. 

New  York,  163-166. 

table  of  1854-1908,  217. 

Philadelphia,  234. 

St.  Louis,  299. 
Middle  States,  rate  of  collection  in,  18. 
Milwaukee,  fines  for  being  late  at  clearing,  53. 

kinds  of  money  acceptable  in  settlement  at,  38 

packages  of  currency,  rules  for  handling  of,  39. 
Minneapolis,  advertising  committee,  22. 

clearing-house  bank  examination  at,  140-144. 

fine  for  being  late  at  clearing  at,  53. 
Money,  labeled  packages,  rules  concerning,  39. 
Montreal,  Canada,  drafts  on,  39. 
Morning  exchange,  at  Philadelphia,  224. 
National  bank  notes,  shortcomings  of,  in  panic  of  1893,  95. 
National  bank  statements,  tabulation  of,  at  New  York,  form,  181. 
National  clearing  house,  argument  for,  60. 

National  currency  act,  1859,  effect  on  clearings  at  New  York,  219. 
National  loan  and  clearing  houses  in  1861,  243. 


326 


C/eart7tg--House      Methods 

New  England,  and  Boston  clearing  house,  259. 

banks,  and  Suffolk  Bank  in  panic  of  1857,  241. 

correspondents  of  Boston  clearing  house,  274. 
drafts  on  Boston  clearing  house,  46. 
New  Haven,  Conn.,  matters  cleared  at,  50. 
New  Orleans,  clearing-house  loan  certificates,  of  1873,  83,  89. 
clearing-house  loan  certificates  of  1879,  90. 

of  1893,  100-105. 

of  1893,  form  of,  102. 

of  1896,  113. 
hours  of  exchanges,  49. 
manager's  checks  at,  43. 
matter  cleared  at,  50. 

settlement  of  balances  at,  by  option  of  cash  or  draft,  45. 
New  York  clearing  house,  148-179. 
and  national  loan,  243. 

application  to  clear  for  another  bank,  form,  173. 
balances  paid  in  cash  at,  in  fifty-five  years,  221. 
bank  examiners,  clearing  house,  proposed,  147. 
building  company,  157-158. 
clearing-house  loan  certificates,  of  i860,  80,  81 

of  1861,  1863,  1864,  82,  83. 

of  1873,  83. 

of  1873,  form,  80,  81,   84. 

of  1884,  90. 

of  1890,  91-92. 

of  1891,  92. 

of  1893,  98. 

of  1907,  1 17-121. 
clearings  for  fifty-five  years  at,  217. 
collections,  outside,  rules  for,  185-187. 
consent  to  clear  for  another  bank,  form,  174. 
building,  cost  of,  159. 
committees,  33,  118,  161-163,  169. 

exchange  and  currency  of,  how  treated  at  Boston,  267. 
exchanges  through  a  member,  text  of  resolution  authorizing,  172. 

time  taken  to  make,  55. 
exchange  slij),  form,  193. 
expenses,  211,  213. 

fines,  amounts  of,  collected  from  1885  to  1908,  214. 
locations  of,  155-159. 
manager's  receipt,  form,  205. 

national  bank  statements,  tabulation  of,  form,  181. 
nonmembers,  regulations  concerning,  166-178. 
origin,  153-154. 
proof  sheet,  form,  201 

327 


National     Monetary     Commission 

New  York  clearing-house — Continued, 
ratio  of  balances  to  clearings.  37 
records,  kinds  kept,  187-189. 
"second  ticket,"  form,  199. 

settling  balances,  proportion  of  money  and  certificates  used  i:i,  208. 
settling  clerk's  receipts,  form,  196. 
settling  clerk's  report  of  daily  balances,  form,  203. 
"small  ticket,"  form,  193. 

State  bank  statements,  tabulation  of,  form,  182. 
trust  companies,  relationship  to,  170-178. 
form  of  statement  required  from,  180. 
weekly  averages,  statement  of,  required,  from  associated  banks,form,  184. 
from  nonmembers,  form,  175. 
from  trust  companies,  form,  176. 
weekly  statements  of  average  condition,  for  associated  banks,  form,  183. 
for  nonmember  banks,  to  face  184,  No.  2. 
summary  of,  for  associated  banks,  to  face  184,  No.  i. 
New  York  State  banking  law,  effect  on  relation  of  trust  companies  to 

clearinghouse,  177-178. 
New  York  Stock  Exchange,  closing  of,  in  1873,  85. 
Nominating  committee,  23,  34- 
at  Boston,  257. 
at  New  York,  163. 
Nonmembers,  regulations  concerning,  25. 
assessment  on,  at  Boston,  256. 

New  York,  212-213. 
bank  examiner's  operations  extended  to,  at  Chicago,  139. 
Boston,  254,  288. 
Chicago,  288-289. 
New  York,  166-178,  288. 

application  to  clear  for  another  bank,  form,  173. 
consent  to  clear  for  another  bank,  form,  174. 

resolutions  authorizing  exchanges  through  a  member  bank,  172. 
Philadelphia,  288. 
St.  Louis,  300-302. 
weekly  statement  of  average  condition  of,  by  New  York  clearing  house, 

form  of,  to  face  No.  2,  184. 
weekly  statement  of  averages,  made  to  New  York  clearing  house,  form, 
175- 
Notes,  deposit  of,  at  Boston  clearing  house,  254. 
in  the  settlement  of  balances  at  Boston,  241 
Northwestern  National  Bank,  trading  of  balances  by,  285. 
Obligation,  delivered  by  banks  at  New  Orleans  in  return  for  loan  certifi- 
cates, 103. 
Officers  of  clearing  house,  at  Philadelphia,  234-236. 
enumerated,  30. 

328 


Clearing-House     Methods 

Ohio   Bankers'    Association   No.    2,   agreement   to   provide   for   protection 
against  "runs,"  131-135. 
check  issued  by,  form,  130. 
Oklahoma,  loan  certificates,  1907,  131. 

Order  used  in  transferring  balances  that  have  been  loaned,  Chicago,  form, 
287. 

on  manager  of  Chicago  clearing  house  for  balance  due,  foira,  293. 
Out-of-town  checks,  provisions  for  handling,  at  Boston,  259,  260. 

See  also  Checks,  country. 
Out-of-town  collections,  amendment  of  constitution  of  New  York  clearing 

house  concerning,  179. 
Out-of-town  items,  schedules  of  rates  of  exchange  on,  fixed   by  exchange 
committee,  35. 

See  also  Collections. 
Outside  institutions.     See  Nonmembers. 
Packages,  rules  concerning,  at  Boston,  245. 

of  checks  in  foreign  department,  at  Boston,  265. 
of  money,  at  Chicago,  282,  284. 
at  Boston,  244. 
transferred  at  New  York,  202. 
Panic,  clearing-house  loan  certificates  as  protection  in,  12,  21,  116. 
assistance  by  clearing  houses  in,  24,  76. 
of  1857,  at  Boston,  241-242. 
of  1861,  at  New  York,  218,  219. 
of  1873,  83,  85. 

at  Boston,  243. 
at  Chicago,  277. 
of  1884,  at  New  York,  90. 
of  1893,  95-112. 

at  Boston,  1 12. 
at  St.  Louis,  effect  at,  298. 
of  1907,  effect  at  New  York,  11 7-1 18. 
at  Chicago,  292-294. 
at  St.  Louis,  298. 

clearing-house  loan  certificates  in,  1 17-136. 
illustrating  need  of  clearing-house  bank  examiners,  138. 
currency  system  as  cause  of,  117. 
attitude  of  clearing  houses  in,  135. 
pay  checks,  issue  of,  by  railroads,  136. 

Ohio  Bankers'  Association,  No.  2,  agreement  for  mutual  protec- 
tion in,  131-135. 
Participating  certificates,  used  at  New  York,  118. 
Pay  checks,  at  Canton,  Ohio,  1907,  125-127. 

employers'  use  of,  at  Philadelphia,  1907,  124-125. 
use  of,  by  railroads,  1907,  136. 

20040—10 22  329 


National     Monetary     Commission 

Penalties.     See  Fines. 

"Personal  checks,"  definition  of,  9. 

Philadelphia  clearing  house,  223-239. 

clearing-house  bank  examiners  installed,  145-146. 

clearing-house  loan  certificates  of,  1873,  83-87. 
of  1890,  94. 
of  1893,  100. 
of  1907,  124-125. 

method  of  calculating  interest  on,  114. 

daily  statement  employed  by  banks  of,  form,  230. 

due  bill  issued  at,  form,  226. 
national  loan  and,  243. 

ratio  of  balances  to  clearings  at,  37. 

reports  on  fraud,  22. 

weekly  statement  of  average  condition  of  banks,  to  face  230. 

weekly  statement  required  of  banks,  228. 
Pittsburg  clearing  house,  arrangement  and  furniture  of,  48. 

clearing-house  loan  certificates  of,  1893,  105. 

committees  of,  2,2 . 

mode  of  settling  balances  at,  44. 

ratio  of  balances  to  clearings  at,  37. 
Portland,  Me.,  clearing  house,  advertising,  2t,. 
Portland,  Oreg.,  clearing  house,  kinds  01  money  acceptable  in  settlement 

of  balances  at,  38. 
Post-office,  New  York,  clearings  by,  164. 

St.  Louis,  clearings  by,  299. 
President  of  clearing  house,  duties  of,  30. 

at  Chicago,  295. 

at  New  York,  159-160. 

at  Philadelphia,  235. 

at  St.  Louis,  301. 
Printing  expenses,  at  Boston,  256. 

at  New  York,  how  met,  212,  213. 

at  Philadelphia,  how  apportioned,  233. 

at  St.  Louis,  301. 
Progressive  ledger,  use  of,  in  foreign  department  of  Boston  clearing  house, 

273- 
Proof,  method  of  arriving  at,  at  Chicago,  280. 

at  New  York,  198. 

at  St.  Louis,  306. 
"  Proof  clerk,"  195. 

Proof  sheet,  clearing  house,  at  New  York,  form,  201. 
Protection,  measures  for,  at  Altoona,  Pa.,  21-22. 

at  New  York,  against  insolvency  of  nonmembers,  167-168. 

at  New  Orleans,  in  connection  with  loan  certificates,  105. 


330 


Clearing-House     Methods 

Providence,  furnishings  of  clearing  house  at,  48. 
Rate  of  collection,  in  Middle  States,  18. 

uniform,  clearing  houses  fix,  2. 
at  St.  Louis,  298. 
Rates  of  exchange,  schedules  adjusted  by  exchange  committee,  35. 
Rates  of  interest,  clearing-house  regulations  of,  on  local  loans,  14. 

agreements  concerning,  25. 

on  borrowing  balances,  at  Boston,  251. 

on  loan  certificates  in  panic  of  1907,  135. 

uniform,  13,  25. 
Ratio  of  balances  to  clearings,  at  Buffalo,  37. 

at  Chicago,  37. 

at  New  York,  37,  220-221. 

at  Philadelphia,  37. 

at  Pittsburg,  37. 

at  St.  Louis,  37. 

what  it  depends  on,  37. 
Receipt,  forms  of.      {See  Forms,  receipts.) 
Reports,  forms  of.      {See  Forms,  reports.) 

at  Philadelphia  and  New  York,  231. 

of  clearing-house  bank  examiners  at  Chicago,  139-140. 
at  Minneapolis,  140-14 1. 
at  St.  Louis,  142-143. 
Reclamations  for  errors  and  deficiencies,  at  Boston,  245. 

at  New  York,  210. 

See  also  Errors. 
Records,  kept,  at  New  York,  187,  208. 

at  Chicago,  294. 

at  St.  Louis,  308-309. 
Relief,  provisions  for,  in  panic,  by  Ohio  Bankers'  Association  No.  2,  131-135. 

See  also  Protection ;  Panic. 
Reserves,  bank,  form  of,  at  New  York,  in  1907,  117. 

cash,  regulations  concerning,  of  nonmembers  at  New  York,   177-178, 
179. 
Resolutions,  authorizing  clearing-house  checks,  Chicago,  1907,  1 21-123. 

authorizing  clearing-house  loan  certificates,  Boston,  1890,  92-93. 
New  Orleans,  1893,  100-103. 
New  York,  1907,  118. 
Philadelphia,  1890,  94. 

authorizing  exchange  through  a  member  bank  at  New  York,  172. 

regarding  jjay-roll  checks,  Philadelphia,  124-125. 

relating  to  nonmembers.  New  York,  168-178. 
Responsibility,  of  New  York  clearing  house,  209. 
Restricted  indorsements,  at  Chicago,  290. 

at  New  York,  clearing  items  with,  211. 

331 


National     Monetary     Commission 

Resumption  of  specie  at  Boston,  1857,  242. 

effect  of,  in  1879,  on  clearings  at  New  York,  219. 

See  also  Specie  payments. 
Richmond,  Va.,  clearing-house  loan  certificates  at,  1893,  no. 
Rochester,  N.  Y.,  collection  charges,  16. 

prohibition  against  inducing  customers  to  change  accounts,  23. 

option  of  cash  or  draft,  in  making  settlements,  45. 
Rockford,  111.,  matters  cleared  at,  50. 
Routine,  daily,  of  clearing  house  at  Boston,  243. 

at  Chicago,  278-284. 

at  New  York,  190. 

at  St.  Louis,  302-306. 

suggestions  afforded  by,  in  foreign  department  of  Boston,  260. 
"Runners,"  at  Philadelphia,  224. 
Runners'  exchange,  at  Philadelphia,  224-227. 
Saginaw,  Mich.,  option  of  cash  or  draft  in  settlements,  45. 
St.  Joseph,  Mo.,  clearing  house,  committee,  32. 

bank  examiners,  144-145. 

rules  concerning  collection,  19,  20. 
interest,  13. 

persons  to  whom  exchange  may  be  sold,  20. 
premium  on  exchange,  20. 
St.  Louis  clearing  house,  298-309. 

bank  examination  at,  system  of  clearing  house,  141-143. 

collection  charges,  17,  18.  » 

debit  list,  303. 

issue  of  loan  certificates,  1873,  83,  89. 

listing  balances  at,  form  used  in,  305. 

manager's  report  of  clearings,  balances,  etc.,  form,  307. 

ratio  of  balances  to  clearings  at,  37. 

rules  concerning  charges  for  exchange,  20. 
St.  Paul  clearing  house,  clearing-house  bank  examination  at,  141. 

matters  cleared  at,  50. 

money  acceptable  in  settlements  at,  38. 
San  Francisco  clearing  house,  clearing-house  bank  examination  at,  33,  144. 

money  acceptable  in  settlements  at,  38. 
Savannah,  Ga.,  clearing  house,  matters  cleared  by,  50. 

rates  of  interest,  14. 
Scotland,  banks  of,  system  of  clearing  of,  referred  to  by  Gallatin,  151. 
Scranton,  Pa.,  clearing  house,  matters  cleared  at,  50. 
"Scrip,"  or  clearing-house  circulating  certificates,  use  of,  at  Los  Angeles, 

129-131. 
Seattle,  Wash.,  clearing  house,  discount  on  Canadian  currency  at,  23. 
"Second  ticket,"  195,  199. 


332 


Clearing-House     Methods 

Secretary  of  clearing  house,  duties  of,  31. 
at  Boston,  257. 

at  Chicago  vested  in  manager,  296. 
at  New  York,  160. 
at  Philadelphia,  235. 
at  St.  Louis,  vested  in  manager,  301. 
Settlement  of  balances,  clearing  houses  divided  according  to  methods  of,  2. 
definition,  9. 

by  cash,  recommended,  28. 
by  circulating  notes,  Boston,  1857,  241. 
by  currency  certificates,  28. 
by  manager's  check,  43. 
methods  of,  37-46. 

with  money,  38-41. 
without  money,  41-46,  229. 
suggestions  for  improvement  in,  26,  27. 
at  Boston,  44,  244,  260-274. 
at  Chicago,  44,  281-284. 

at  New  York,  prior  to  establishment  of  clearing  house,  149-150. 
details  of,  202. 
first  plan  for,  153-154. 
at  Philadelphia,  225,  229. 
at  Pittsburg,  44. 
at  St.  Louis,  304-305. 
out  of  town,  by  Boston  foreign  department,  260-274. 
record  of  money  and  certificates  used  in,  kept  at  New  York,  208. 
in  trading  balances  at  Chicago,  286. 
Settling  clerks,  rules  concerning,  at  Baltimore,  52. 
at  Cincinnati,  52. 
at  New  York,  191,  195,  198. 
fines  for  mistakes  of,  55. 
methods  of,  in  making  exchanges,  52-53. 
receipts,  at  New  York,  form,  196. 
reports  of,  at  New  York,  form,  203. 
statement,  at  New  York,  form  of,  197. 
at  Boston,  foreign  department,  271. 
at  Boston,  foreign  department,  form,  275. 
Settling  sheet,  at  Boston,  form,  275. 

See  also  Settling  clerks,  statement. 
Sherer,  William,  manager  of  New  York  clearing  house,  160. 
Silver,  clearing-house  certificates,  used  in  settling  balances  at  New  York 
208. 

coin,  objections  to,  39-41. 

use  of,  in  settling  balances,  at  Boston,  244. 


333 


National     Monetary     Commission 

Sioux  City  Clearing-House  Association,  maximum  rate  of  interest,  13. 
Sixth  National  Bank,  effect  of  looting  of,  on  regulations  for  nonmembers  at 

New  York,  169. 
Slip,  foreign  and  check  ticket,  of  Boston  clearing  house,  form,  266. 
"Small  ticket,"  use  of,  at  New  York,  192,  198. 

facsimile  of.  New  York,  193. 
South  Bend,  Ind.,  clearing  house,  telephone  method  used  in  clearing  at,  53. 
Specie,  encouragement  to  use  of,  by  Boston  clearing  house,  in  1857,  242. 
management  of,  in  exchanges,  in  early  New  York  banking,  150. 
payments,  resumption  of,  in  1879,  efTect  on  clearings  at  New  York,  219. 
suspension  of,  at  New  York  and  Boston,  1857,  241,  243. 
Spring  Garden  National  Bank,  and  issue  of  loan  certificates  in  1890,  94. 
Statements.     {See  Forms,  statements.) 
Stock  Exchange  clearing  house,  establishment  of,  at  New  York  and  effect 

on  clearings,  220. 
Subtreasuries,  28. 
Subtreasury,  United   States,  membership  of,  in  New  York  clearing  house 

association,  163,  164. 
Suffolk  Bank  and  Boston  clearing  house  in  panic  of  1857,  241. 
Superintendent  of  banks,  California,  appointment  of,  supersedes  plan  for 

clearing  house  bank  examiners,  147. 
Suspension  of  members,  at  Philadelphia,  234.  * 

power  of,  at  Boston,  257. 

of  specie  payments,  at  New  York  and  Boston,  1857,  241,  243. 
Syracuse,  N.  Y.,  clearing  house,  draft  used  in  settlement  at,  45. 
Tables: 

balances  paid  in  cash  at  New  York  in  fifty-five  years,  221. 

clearings  for  fifty -five  years  at  New  York,  217. 

fines  collected  by  New  York  clearing  house  association  from  1885  to 

1908,  214. 
volume  of  business  handled  annually  by  foreign  department  of  Boston 
clearing  house,  274. 
Ticket.     {See  Forms,  ticket.) 

Trading  of  balances.     {See  Borrowing  and  loaning  of  balances.) 
Transfer  of  balances.     {See  Borrowing  and  loaning  of  balances.) 
Transfers  by  cable  or  telegraph,  charges  for,  20. 
Transmittal,  letter  of,  Boston  foreign  department,  form,  272. 
Treasurer  of  clearing  house,  duties  of,  31. 

duties  of,  vested  in  manager,  at  Chicago,  296. 

at  St.  Louis,  301. 
of  the  United  States,  certificates  issued  by  for  clearing  house  purposes 
at  Philadelphia,  227. 
Trust  companies,  on  requirement  of  cash  reserve  by  New  York  clearing 
house,  178. 

statement  required  of,  by  New  York  clearing  house  association,  form 
of,  180. 

334 


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